Report to the Inspector-General of Taxation on Taxpayer Rights Prepared … · 2016-11-28 · The...

Report to the Inspector-General of Taxation on Taxpayer Rights

Prepared by Dr Kalmen Datt

April 2016

2 Taxpayer Rights

Contents 1. Introduction ........................................................................................................................ 5

Table of Taxpayer Rights and Presumptions ............................................................................. 8

2. Criminal Offences ............................................................................................................... 20

3. Taxation Administration Act 1953 (TAA) ........................................................................... 25

3.1 Objection Decisions ........................................................................................................... 25

3.2 Challenges to Private Rulings ............................................................................................ 37

3.3 Appeals from AAT and Federal Court as Courts of First Instance.................................... 39

3.4 Referral to a Full Bench of the Federal Court from AAT .................................................. 40

3.5 Departure Prohibition Orders ............................................................................................. 40

3.6 PAYG ................................................................................................................................. 41

3.7 Tax Receipts....................................................................................................................... 42

3.8 Release of Excess Concessional Contributions ................................................................. 43

3.9 Administration of Indirect Taxes ....................................................................................... 43

3.10 Assessments ..................................................................................................................... 44

3.11 Collection and Recovery of Tax-Related Liabilities and Other Amounts ....................... 45

3.12 Security Deposits .......................................................................................................... 49

3.13 Administrative Penalties under Division 284 .................................................................. 50

3.14 Powers of the Commissioner to Obtain Information and Evidence ................................ 52

3.15 Secrecy Provisions ........................................................................................................... 56

3.16 Rulings ............................................................................................................................. 57

4. Income Tax Assessment Act 1936 (ITAA 36) ...................................................................... 60

5. Taxation (Interest on Overpayments and Early Payments) Act 1983 .................................. 61

6. Freedom of Information Act 1982 (FOI) ............................................................................ 62

7. Privacy Act 1988 (Privacy Act) ........................................................................................... 64

8. Inspector-General of Taxation Act 2003 ............................................................................. 66

9. Other Legislation ................................................................................................................. 67

9.1 General ............................................................................................................................... 67

9.2 Legitimate Expectations..................................................................................................... 67

9.2.1 Accountants’ Concession ............................................................................................ 77

9.2.2 Corporate Board Concession ....................................................................................... 79

9.3 Administrative Decisions (Judicial Review) Act 1977 (AD(JR)A) .................................... 79

3 Taxpayer Rights

9.3.1 The Applicant must be a ‘Person Aggrieved’ ............................................................. 80

9.3.2 The Application must be made in time ....................................................................... 80

9.3.3 There must be a ‘Decision’ ‘Conduct’ or ‘Failure’ Within Scope of the AD(JR)A ... 80

9.3.3.1 A Decision of an Administrative Character ............................................................. 81

9.3.3.2 A Decision Made under an Enactment ..................................................................... 81

9.3.4 The Decision Must Not Be ‘Excluded’ from the Scope of the AD(JR)A ................... 82

9.3.5 The Applicant Must Establish One of the ‘Grounds for Relief’ Set Out in the AD(JR)A .............................................................................................................................. 82

9.3.6 The Exercise of the Court’s Discretion to Grant Relief .............................................. 84

9.3.7 The Right to Reasons for a Decision ........................................................................... 84

9.3.7.1 Requests ................................................................................................................... 85

9.3.7.2 Responses ................................................................................................................. 85

9.4 The Constitution................................................................................................................. 87

9.4.1 Challenging Validity of Tax Laws .............................................................................. 87

9.4.2 Section 75 of the Constitution ..................................................................................... 88

9.5 Section 39B of the Judiciary Act 1903 (JA) ...................................................................... 90

10. Common Law..................................................................................................................... 93

10.1 Discretions ....................................................................................................................... 93

10.2 Can the Commissioner be Prevented from Issuing an Assessment Even if it is Incorrect?.................................................................................................................................................. 94

10.3 Is a Duty of Care Owed to Taxpayers? ............................................................................ 95

10.4 Pure Economic Loss ...................................................................................................... 100

10.4.1 Scheme for Compensation for Detriment Caused by Defective Administration .... 101

10.4.2 Claims for Pure Economic Loss .............................................................................. 101

11. Court Processes ................................................................................................................ 103

11.1 Summary Judgment ....................................................................................................... 103

11.2 Declaratory Relief .......................................................................................................... 105

11.3 Mandamus ...................................................................................................................... 106

11.4 Certiorari ........................................................................................................................ 106

11.5 Prohibition...................................................................................................................... 107

11.6 Injunction ....................................................................................................................... 107

11.7 Mareva Injunction .......................................................................................................... 107

12. Estoppel............................................................................................................................ 109

13. Res Judicata ..................................................................................................................... 111

4 Taxpayer Rights

14. Unjust Enrichment ........................................................................................................... 115

15. Human Rights .................................................................................................................. 118

16. Model Litigant Rules ....................................................................................................... 121

17. Conclusion ....................................................................................................................... 127

5 Taxpayer Rights

1. Introduction

The Inspector-General of Taxation (IGT) is conducting a review under section 8(1) of the

Inspector-General of Taxation Act 2003 (IGT Act) of the rights a taxpayer has when dealing

with the Australian Taxation Office (ATO)1. In terms of that review the IGT has requested

the School of Taxation and Business Law (incorporating ATAX) at the University of New

South Wales, Australia (UNSW) to research the tax laws2 and common law with a view to

identifying for the IGT the rights that are currently available to taxpayers.

This report to the IGT is limited in a number of respects and is based on some fundamental

understandings and assumptions. The first relevant assumption is the meaning of a ‘right’

that has been identified for the purposes of the research. For these purposes a ‘right’ is a

right that is actionable in that it may be enforced in courts. In the process of this research

project we have also identified a category of positions that taxpayers may find themselves in

that we have termed ‘presumptions’. A ‘presumption’ is not enforceable in this way but

describes a situation in which a taxpayer may believe that they will be treated in a particular

way or afforded a particular indulgence that is weaker than a right but which they and the

Australian community might regard as fair in the circumstances.

It should be noted that aside from the discussion of ‘presumptions’ above, before considering

statutory entitlements to judicial review there is a brief reference to the concept referred as a

‘legitimate expectation’ and whether any act or omission by the Commissioner could give

rise to a legitimate expectation and the consequences that may flow from a failure to meet

such an expectation. In this part of the report, reference is made to the Public Governance,

Performance and Accountability Act 2013 (PGPA) and the Public Service Act 1999 (PSA).

Subject to this, the first limitation is that the report does not consider those statutes that afford

taxpayers certain entitlements such as tax offsets or deductions or the ability to choose some

or other method of calculating income or a deduction. The second limitation is that the report

does not consider all cases where the Commissioner is granted discretion to alleviate the

1 References to the ATO or Commissioner of Taxation (the Commissioner) are used interchangeably throughout unless the context suggests otherwise. 2 These are the laws administered by the Commissioner including Fringe Benefits Tax (FBT); Goods and Services Tax (GST), Superannuation and Income Tax.

6 Taxpayer Rights

effects of the tax laws either partially or in whole.3 Neither of these establishes rights of

taxpayers as envisaged by the IGT.

Thirdly there are various statutes that the Commissioner administers or which may impact on

how he deals with a taxpayer. Most of these statutes do not grant taxpayers any rights in their

capacity as taxpayer and are not referred to further. Examples of such statutes include the

Income Tax Assessment Act 1997; Fringe Benefits Tax Act 1986; Fringe Benefits Tax

Assessment Act 1986; and Crimes (Taxation Offences) Act 1980. Some of the tax laws

impose criminal sanctions on taxpayers. Other than to furnish a brief over view of the nature

of the criminal process these are not considered although Appendix A describes the offences

and penalties that can be imposed under the Taxation Administration Act 1953 (TAA).

A fourth limitation is that the report does not directly consider any customs or excise laws or

rights that may arise from the administration of these imposts. Finally, as the issues covered

in this report including (but not limited to): common law rights of taxpayers, estoppel, the

Administrative Appeals (Judicial Review) Act 1977, Judiciary Act 1903, the TAA are topics

of significant length and complexity, and on which there are vast bodies of case law, this

report can of necessity only deal with them succinctly as it is impossible to cover all aspects

or all of the cases on any one aspect in this report.4 The report reviews some of the leading

cases that have bearing on the matters considered. This approach best meets the purposes of

the report and provides a sound and adequate basis for evaluation.

The report is based on sundry sources. In support of some of its conclusions, reference is

from time to time made to extracts from cases. Where the extract is clear in communicating

the concept sought to be conveyed, no further comment is made in relation to it.

The section headed ‘Collection and recovery of tax-related liabilities and other amounts’

contains references to the Corporations Act 2001 and insolvency issues albeit under the

general heading of the TAA.

This report deals separately with each of the tax laws which may grant taxpayers’ rights in

response to any act or omission by the Commissioner and then turns to the common-law and

3 Examples include the discretion of the Commissioner to remit all or part of a penalty imposed or not to collect all or part of a tax debt. 4 See for example John Bevacqua, Taxpayer rights to compensation for tax office mistakes, CCH and ATTA Doctoral series No3, CCH Australia Ltd (Bevacqua); Duncan Bentley, A Model of taxpayers rights as a guide to best practice in tax administration, Thesis presented for the degree of PhD at Bond University.

7 Taxpayer Rights

other statutes. The order in which these matters are considered appears from the table of

contents to this report. A summary of the rights of taxpayers and the section numbers in

which they are considered appear from the table immediately after this section. Even though

something is described as a right in the table below, no comment is passed on a taxpayer’s

prospects of success in launching proceedings to enforce such rights. Such comments appear

in the body of this report.

8 Taxpayer Rights

Table of Taxpayer Rights and Presumptions

Right Effect/Consequences Legal Basis Discussion

in Report

Defend criminal charges

arising from a breach of the

tax laws. As part of this right

the accused is generally

entitled to the presumption of

innocence.

To defend criminal

proceedings.

Common law.

Section 2A

TAA

incorporates

Chapter 2 of

the Criminal

Code to all

offences under

the TAA.

Section 2.

Challenge (most) assessments,

determinations, notices and

decisions made by the

Commissioner of Taxation.

Challenge via the

Administrative Appeals

Tribunal (AAT) and/or

Federal Courts.

Incorporated within this

right are a number of

ancillary rights. An

example is the ability of a

taxpayer to approach the

Administrative Appeals

Tribunal for relief if the

taxpayer has noted an

objection to an assessment

out of time and the

Commissioner has not

agreed to accept it as

being in time.

Part IVC TAA. Section 3.1.

Taxpayers may seek an

amendment of their income tax

return.

To ensure an assessment

is issued on the correct

information.

Section 170

Income Tax

Assessment Act

1936.

Section 3.1

9 Taxpayer Rights

Individual taxpayers are

entitled to represent

themselves in any proceedings

before any court or tribunal.

Individual taxpayer’s

representation in

challenges to acts or

omissions of the

Commissioner.

Common-law. Section 3.1.

Challenge the issue/failure to

issue a private ruling by the

Commissioner of Taxation.

Challenge via the AAT or

Federal Court the ruling

or failure to provide a

ruling.


Appeal an AAT or Federal

Court decision.

To overturn the decision

of the tribunal or court of

first instance.


Request a referral on a

question of law to the full

bench of the Federal Court.

Obtain ruling on question

of law before AAT

determines matter.

Section 44

Administrative

Appeals

Tribunal Act

1975.

Section 3.4.

Request a variation or

revocation of a departure

prohibition order (DPO).

Variation or revocation of

such orders.

Section 14T

TAA.

Section 3.5.

Where a DPO has been issued

request a departure

authorisation certificate.

To permit the taxpayer to

leave Australia for a

limited time.

Section 14U

TAA.

Section 3.5.

Challenge the issue of a

departure prohibition order.

Challenge via the Federal

Court or State Supreme

Courts.

Section 14V

TAA.

Section 3.5.

A taxpayer who had

withholding payments

deducted from amounts due to

it is entitled to credits by the

Commissioner for the sums

withheld irrespective of

whether the paying entity has

Credits on liability for tax. Schedule One

to the TAA-

section 18-15.

Section 3.6.

10 Taxpayer Rights

accounted to the

Commissioner for these

monies.

If more than a taxpayer’s

assessed tax liability has been

withheld the Commissioner

must refund the excess.

To ensure correct tax

collected.

Schedule One

to the TAA.

Section 3.6.

If the fact of the overpayment

is discovered early the

taxpayer may obtain a refund

from the entity that withheld

the amount.

Obtain refund for excess

withholding payment

withheld.

Schedule One

to the TAA-

sections 18-

(65-80).

Section 3.6.

The Commissioner must

provide taxpayers with a tax

receipt for an income year.

To enable taxpayers to

know how tax assessed to

that taxpayer for the

income year is notionally

used to finance different

categories of

Commonwealth

government expenditure.

Section 70-5

TAA.

Section 3.7.

Object to an excess

concessional contribution

determination under Part IVC.

Overturn such a

determination either in

whole or in part.

Section 97-10

TAA.

Section 3.8.

Elect to pay an excess


determination from a

superannuation interest.

Payment of an excess


determination.

Section 96-5(1)

TAA.

Section 3.8.

Request an assessment of an

indirect tax.

Obtain assessment to

enable challenge.

Section105-20

TAA.

Section 3.9.

Demand an assessment if no

assessment is issued 6 months

after return submitted.

Obtain an assessment. Section155-30

TAA.

Section 3.10.

11 Taxpayer Rights

The Commissioner may not

amend an assessment after the

period for review as elapsed.

Finality of assessment. Section 155-40

to 155-60.

TAA.

Section 3.10.

A taxpayer may extend the

time period for review if

requested by the

Commissioner.

To afford Commissioner

further time to assess

taxpayer.

Section 155-35

TAA.

Section 3.10.

A garnishee notice may be

challenged under the

Administrative Decisions

(Judicial Review) Act 1977

(AD(JR)A) or Judiciary Act

1903 (JA) or Constitution.

Set aside garnishee. Various

statutes

mentioned in

first column.

Section 3.11.

The Commissioner may

recover a debt owing under an

assessment notwithstanding

proceedings in AAT or Federal

Court are in progress. A

taxpayer may apply for a stay

of execution on grounds of

serious hardship.

Stay execution. Sections 14

ZZM and 14

ZZR TAA.

Sections 3.1

and 3.11.

Discharge from bankruptcy

(subject to an exception

relating to secured debts)

operates to release a taxpayer

from all debts.

Release from debts. Section 153

Bankruptcy Act

1966.

Section 3.11.

If bankruptcy deprives a

taxpayer the right to challenge

an assessment a stay of those

proceedings may be granted.

Stay of bankruptcy

proceedings.


Right to review a demand for a

security deposit under

AD(JR)A or JA or

Set aside requirement for

security.

Various

statutes

mentioned in

Section 3.12.

12 Taxpayer Rights

Constitution. first column.

Challenge an assessment for

an administrative penalty

under Part IVC.

Set aside penalty. Section 298-30

TAA.

Section 3.13.

Apply to remit a penalty. Reduce penalty either in

whole or in part.

Section 298-20

TAA.

Section 3.13.

Challenge a refusal to remit

either in whole or in part a

penalty if amount payable after

refusal is $360 (2 penalty

units) or greater.

Challenge refusal to remit

penalty.

Section 298-20

TAA.

Section 3.13.

On an inspection under section

353-15 TAA ATO officers

may not remove original

documents.

ATO officers may only

make copies of

documents.

Section 353-15

TAA.

Section 3.14.

The individual entering on

premises under section 353-15

on behalf of the Commissioner

must produce proof of

authority on request.

Must have authority to

enter on premises.

Section 353-15

TAA.

Section 3.14.

Taxpayers have the right to

claim legal professional

privilege when responding to

requests for information or

documents by the

Commissioner under sections

353-10 and 353-15 TAA.

Right to claim legal

professional privilege.


The exercise of powers under

sections 353-10 and 353-15

are subject to review under the

AD(JR)A or JA or

Constitution.

Conduct of Commissioner

subject to judicial review.

AD(JR)A; JA

and

Constitution.

Section 3.14.

Notices to give evidence under To ensure party giving Section 353-10 Section 3.14.

13 Taxpayer Rights

section 353-10 must specify

the entity against which

information is sought, give a

reasonable time and place for

the giving of evidence and the

notice must specify the nature

of the evidence sought with

clarity.

evidence knows what’s

required.

TAA and

common-law.

A taxpayer is obliged to

comply with a notice under

section 353-(10-15) only to the

extent they are able to do so.

Comply with notices. Common-law. Section 3.14.

Where information is held

offshore and a taxpayer does

not comply with a notice under

section 264A ITAA 36, the

information contained in such

documents may not be used in

challenge proceedings, other

than with the consent of the

Commissioner, unless this

prohibition would result in an

incontestable tax.

May not have an

incontestable tax.

Section 264A

(13) ITAA 36.

Section 3.14.

Personal taxpayer information,

including tax file numbers are

secret and may only be

disclosed by the ATO in

limited circumstances.

Right of taxpayers to have

affairs kept confidential.

Division 355

TAA, Privacy

Act 1988.

Section 3.15

and section

6.

Rulings whether public,

private or oral are binding on

the Commissioner and if

taxpayers bring themselves

within their terms taxpayers

Taxpayers can arrange tax

affairs in terms of rulings.

Divisions 357

to 360 TAA.

Section 3.16.

14 Taxpayer Rights

are entitled to be assessed as

provided by such ruling.

Taxpayers are not obliged to

accept the terms of a ruling

and may apply their own

interpretation of the law if they

are of the view that the

Commissioner’s view is

incorrect.

Taxpayers can elect

whether to accept a ruling

as correct.

Divisions 357

to 360 TAA.

Section 3.16.

Time periods are specified as

to when the Commissioner

may amend an assessment.

To bring finality to

assessment process.

Section 170

Income Tax

Assessment Act

1936.

Section 4.

Taxpayers are entitled to

interest on certain over and

pre-paid amounts and to be

compensated for a payment

made under a mistake of fact

or law.

To ensure taxpayers are

compensated for the use

of their money by ATO.

Taxation

(Interest on

Overpayments

and Early

Payments) Act

1983.

Section 5

and 14.


access government documents.

To ensure knowledge of

how government and its

departments operate.

Freedom of

Information Act

1982 (FOI).

Section 6.

Taxpayers can request a

notation or amendment on

information held by the

Commissioner which they

believe to be incomplete or

incorrect.

To ensure correct

information is held.

Section 48 FOI. Section 6.

If a request for information has

been refused other than by the

principal officer of the agency

or the responsible Minister, the

taxpayer may apply in writing

Request an internal review

of a refusal to furnish

information.

Section 54 and

54B FOI.

Section 6.

15 Taxpayer Rights

for an internal review of that

decision.

If refusal to grant access to

information or on internal

review the decision is affirmed

a taxpayer may request an

Information Commissioner

Review (ICR).

To ensure review of

decision.

Section 54 FOI. Section 6.

During an ICR a taxpayer may

request the Information

Commissioner to hold a

hearing.

To obtain a ruling on

access to information.

Section 55B

FOI.

Section 6.

Taxpayer can appeal a

decision of the Information

Commissioner to the Federal

Court on question of law or

take it on review to the AAT.

The AAT decision may be

appealed on a question of law.

Appeal review finding. Sections 56, 57

FOI.

Section 6.

If the ATO breach the privacy

principles a taxpayer may

complain to the Information

Commissioner or Inspector-

General of Taxation (IGT).

Remedies for breach of

privacy principles under

Privacy Act 1988.

Section 36

Privacy Act

1988.

Section 7.

Taxpayer can commence

proceedings in Federal Court

to enforce a determination of

Information Commissioner.

Enforce determination. Section 55A

Privacy Act

1988.

Section 7.

Taxpayers may lodge

complaint about treatment by

ATO other than on

assessments to IGT.

Ensure treated as required

by tax laws.

Inspector-

General of

Taxation Act

2003.

Section 8.

If a taxpayer follows in good Remedies for following Section 361-5 Section 9.2.

16 Taxpayer Rights

faith non-binding advice the

taxpayer is not liable to pay

the general interest or the

shortfall interest charges.

non-binding advice. TAA.

A taxpayer is entitled to be

treated procedurally fairly in

all dealings with the

Commissioner.

To obtain procedurally

fair treatment from ATO.


Object (subject to exceptions

set out in the Administrative

Decisions (Judicial Review)

Act) to administrative

decisions made ‘under an

enactment.’

A statutory route by

which to challenge

qualifying decisions made

by the administrator via

an application to the

Federal Court or Federal

Magistrates’ Court.

Administrative

Decisions

(Judicial

Review) Act)

AD(JR)A).

Section 9.3.

Right to obtain reasons for a

decision.

To understand the basis

and grounds of a decision.

Section 13

AD(JR)A.

Section

9.3.7.

Challenge constitutional

validity of a tax law.

To set aside an invalid tax

law.

Common-law

read with

sections 51, 53

and 55 of the

Constitution.

Section

9.4.1.

Right to apply to High Court

for relief against

Commissioner for wrongful

conduct.

Review of conduct of

Commissioner.

Section 75 of

the

Constitution.

Section

9.4.2.

Right to apply to Federal Court

for wrongful conduct of

Commissioner.

Review of conduct of

Commissioner.

Section 39B

Judiciary Act

1903.

Section 9.5.

Right to know that any

discretion exercised by

Commissioner will be

exercised in the same manner

To ensure certainty of

conduct of Commissioner.


17 Taxpayer Rights

for all taxpayers with identical

characteristics.

Taxpayers are entitled to

reasons for the manner in

which discretion is exercised

by the Commissioner.

To know the basis for the

exercise of a discretion.


ATO staff need to ensure they

do not act in such a way that

causes damage to a taxpayer’s

person or property whilst

administering the tax laws.

To grant a claim to a

taxpayer where ATO

staff, in the actual or

ostensible pursuit of the

ATO’s interests cause

physical damage to a

taxpayer’s property or

person.



seek compensation under the

Scheme for Compensation for

Detriment caused by Defective

Administration.

Compensation for

defective administration.

Executive

power of the

Commonwealth

under section

61 of the

Constitution

and the Public

Governance,

Performance

and

Accountability

Act 2013.

Section

10.4.1


claim damages for pure

economic loss.

To ensure taxpayers are

compensated for loss due

to wrongful acts by the

ATO.

Common-law. Section

10.4.2

Taxpayers have right to apply

for summary judgment in the

Federal court.

To shorten proceedings. Section 31(A)

Federal Court

of Australia Act

Section 11.1.

18 Taxpayer Rights

1976; Federal

Court Rule

26.01.

If a Mareva order is granted

against a taxpayer he/she is

entitled to an undertaking from

the Commissioner as to

damages.

To prevent abuse of

process.


A taxpayer is entitled to accept

that the Commissioner will

comply with any agreement

concluded between the parties.

Prevent breaches of

agreements.

Common-law. Section 12.

If Commissioner enters into an

agreement with a taxpayer and

that agreement is made an

order of court the

Commissioner cannot act

contrary to that agreement

unless the judgment is set

aside.

To prevent

unconscionable conduct

by Commissioner.


If a judgment is granted on an

issue between the

Commissioner and a taxpayer,

the taxpayer can rely on the

principle of res judicata in

relation to those issues

determined by the court.

To prevent multiple cases

on the same issues.


The common law protects

taxpayer litigants where the

State is a party.

To ensure the

Commissioner does not

take unfair advantage of

limited resources of

taxpayers.


Presumptions by Taxpayers

19 Taxpayer Rights

Under certain circumstances

an administrative penalty may

be reduced by between 20 and

100% if certain criteria are

met.

Reduce administrative

penalties.

Divisions 284-

298 TAA.

Section 3.13.

Taxpayers will be treated in

terms of the taxpayer’s charter

and other forms of non-

binding advice.

To be treated fairly. Common-law. Section 9.2.

The Commissioner will act in

such a way so as to recognise a

taxpayer’s human rights.

To ensure taxpayer is

treated fairly.

Australian

Human Rights

Commission Act

1986 and

common-law.

Section 15.

Taxpayers have a presumption

they will be treated in terms of

the model litigant rules.

To be treated fairly when

litigating against the

ATO.

Section 55ZF of

JA read with

Appendix B to

Legal Services

Directions 2005

- F2006L00320,

[2].

Section 16.

20 Taxpayer Rights

2. Criminal Offences5

Part 3 of the TAA prescribes certain criminal offences6 arising from breaches of the tax laws.

Taxpayers have the right to defend themselves against any criminal charges brought against

them.

A principle of criminal law is that a person is innocent until proven guilty. Lacey refers to

this as the jewel in the crown of criminal law doctrine.7 The presumption of innocence is

almost universally recognised. The criminal trial is usually an adversarial proceeding brought

by the Crown against the accused. The Crown must prove its case. A defendant cannot be

compelled to give evidence in defence of a plea of not guilty. The prosecution must prove the

guilt of the accused by evidence other than the compulsory answers or assistance of the

accused. The onus of proving guilt is generally on the Crown and does not shift to the

accused.8

The onus on the Crown is generally to prove beyond a reasonable doubt9 (the criminal

standard) that all the elements of the offence are present. Normally a criminal offence

requires both the commission of the crime together with a mental element. The Criminal

Code Act 1995 (Cth) (Criminal Code) refers to the criminal act and necessary intent to

commit a crime as the physical and mental elements of a crime.10 Chapter 2 of the Criminal

Code applies to all offences against the TAA: section 2A. A number of taxation offences,

however, are either strict or absolute liability offences where the Crown does not have to

prove the fault element of an offence.11

5 This section, with some minor variations, is an extract from Kalmen Datt, A critical evaluation of how aspects of the tax system in Australia are administered and their impact on corporations and directors, (Australian Tax Research Foundation) Research Study 49, 2015. 6 Appendix A sets out these various offences and the penalties that may be imposed. This appendix is an extract from Kalmen Datt ibid. 7 Nicola Lacey, ‘Criminalization as Regulation: The Role of Criminal Law’ in Christine Parker, Colin Scott, Nicola Lacey and John Braithwaite (eds), Regulating Law (Oxford University Press, (2004) 21. 8 Environment Protection Authority v Caltex Refining Co Pty Ltd (1993) 178 CLR 477 [17], [30] (McHugh J). 9 ‘Proof beyond reasonable doubt is a very high standard to meet. This test per Kos J in R v Rowley and Skinner (No 2) (2012) 25 NZTC ¶20-133 is the following:

I must be sure the accused is guilty. If I have an honest and reasonable uncertainty left in my mind about the guilt of the accused on a count, after thorough and impartial consideration given to all the evidence, I must enter a verdict of not guilty on that count.

10 In serious cases of tax evasion, general Commonwealth fraud and money laundering offences are brought pursuant to the Criminal Code. 11 With absolute liability, there are no fault elements for any of the physical elements of the offence and the defence of mistake of fact is unavailable. With strict liability, there are no fault elements for any of the physical elements of the offence and the defence of mistake of fact is available: sections 6.1–6.2 of the Criminal Code.

21 Taxpayer Rights

With some offences the legislature has reversed the onus of proof, effectively deeming guilt

unless the accused shows on a balance of probabilities12 that he/she is not guilty of the

offence. An example is section 8Y TAA which inter alia provides that if a corporation

commits a tax offence a director of that corporation is deemed to have committed that offence

simply by virtue of the office that person holds. It is difficult to discharge this onus. The

courts have variously said that it is difficult to prove a negative,13 that it is notoriously

difficult to prove a negative14 and that the forensic difficulty of proving a negative is well

known.15 That the onus can be discharged on a balance of probabilities (the civil standard)

makes no difference to this basic fact.

In addition to the offences mentioned in Appendix A, sections 8WA to 8WC deal with

offences relating to the use of tax file numbers, while section 8X refers to unauthorised

access to taxation records.

Some of the offences in Appendix A are Prescribed Taxation Offences (PTOs). These

offences do not carry the possibility of a prison term on conviction. All taxation offences

committed by a corporation are PTOs.16 In a prosecution for a PTO, the court may award

costs against any party.17

A prosecution for a taxation offence18 may be commenced at any time.19 A successful

prosecution does not relieve the taxpayer of the liability to pay any tax, duty or charge that

would otherwise be payable.20 A claim for a civil penalty under the TAA is not the

prosecution of a taxation offence.21

12 In Bai v FCT [2015] FCA 973 [31] Rares J described this test as follows:

There is a substantive difference in requiring the exclusion of a possibility and the conventional civil onus of proof of establishing a matter on the balance of probabilities. It is one thing not to be satisfied about a matter because, weighing all the evidence, the decision-maker is not persuaded that it is more likely than not that a fact existed or did not exist, and quite another thing to require the proof of that matter by excluding all other possibilities. The latter is akin to applying the criminal onus of proof beyond reasonable doubt.

13 Vaughan v The King (1938) 61 CLR 8. 14 Cassell v The Queen (2000) 201 CLR 189 [66]. 15 A v NSW (2007) 233 ALR 584 [60]. 16 Section 8A. 17 Section 8ZN. 18 A ‘taxation offence’ means an offence against a taxation law, or an offence against s 6 of the Crimes Act or sections 11.1, 11.4 or 11.5 of the Criminal Code, being an offence that relates to an offence against a taxation law: section 8A. 19 Section 8ZB. 20 Section 8ZH. 21 Christis v DFC of T 2011 ATC ¶20–285 [14].

http://www.austlii.edu.au/au/legis/cth/consol_act/ca191482/s6.html

22 Taxpayer Rights

If a taxpayer is liable to pay by way of penalty an amount under a taxation law because of an

act or omission of that taxpayer and a prosecution is instituted against that person for a

taxation offence constituted by the act or omission; then (whether or not the prosecution is

withdrawn) the person is not liable to pay that penalty. Any such amount paid, or applied by

the Commissioner, in total or partial discharge of that liability is to be refunded, or applied by

the Commissioner in total or partial discharge of another tax liability of the taxpayer.22

If found guilty of any offence, in addition to any sentence that might be imposed, the

operation of sections 19B or 21B Crimes Act 1914 (Crimes Act) or the Proceeds of Crime Act

2002 (Proceeds Act) may come into effect.23 A brief discussion of these provisions follows.24

Section 19B allows a court to discharge a person charged with a federal offence25 without

proceeding to conviction, or to dismiss the charge under certain circumstances even though

the offence is proved.26 These orders can be made conditional on the accused giving

reparation or restitution or paying compensation in respect of the offence. For example, a

court could discharge an accused, but make the discharge conditional on the outstanding tax

of the taxpayer being paid if such non-payment were part of the offence.

Under section 21B, if a person is convicted of a federal offence or an order is made under

section 19B, that person can be ordered to make reparation to the Commonwealth or to a

public authority under the Commonwealth27 in respect of any loss suffered or any expense

incurred by reason of the offence.28 If a reparation order is made, it has the effect of a civil

judgment in favour of the Commonwealth or that public authority, and is enforceable in all

respects as a final judgment. This enables a court to order a taxpayer to pay to the

Commonwealth any tax shortfall occasioned by the offence.

22 Section 8 ZE. 23 The predecessor of the Proceeds Act is the Proceeds of Crime Act 1987 (Cth). The earlier Act was a conviction-based statute that required proof on the criminal standard. Although still on the statute book, it is only operative in relation to matters that commenced before January 2003. 24 For an overview of how these statutes operate see, Denis Barlin and Michael Bennet, ‘Directors Duties—The Tax Perspective’ (Paper delivered at the Law Society of New South Wales Young Lawyers’ CLE, Sydney, 2011). 25 A federal offence is an offence against the law of the Commonwealth: Crimes Act section 16. 26 In Commissioner of Taxation v Baffsky [2001] NSWCCA 332 (7 September 2001), an order under section 19B was made on charges of failing to submit income tax returns in time. 27 A public authority under the Commonwealth includes the ATO: Crimes Act section 3. 28 The court can also make awards in favour of any person, by way of money payment or otherwise, in respect of any loss suffered as a result of the offence: Crimes Act section 21B.

23 Taxpayer Rights

A reparation order is discretionary and forms part of the sentencing process. The loss for

which reparation is made may not be difficult to prove. It is sufficient to show that the state

has been deprived of money that it would have been paid had it not been for the commission

of the offence.29

The Proceeds Act has four types of recovery orders: forfeiture, automatic forfeiture,

pecuniary penalty and literary proceeds. Forfeiture and automatic forfeiture orders are used to

recover assets that are the proceeds of or were used in a crime. Pecuniary penalty orders are

awarded against entities for the benefits derived from crime, and literary proceeds orders are

used to recover any profits made through the commercial exploitation of criminal activity.

The standard of proof is on a balance of probabilities. The Proceeds Act also provides for an

order, described as an unexplained wealth order, requiring a person to pay an amount of their

total wealth, calculated by reference to that which they have been unable to prove is not

derived from committing the offence in question (again, a reverse onus).30

For the Proceeds Act to apply, the offence alleged to have been committed must be either

indictable or serious. Serious offences are those offences that are an indictable offence,

punishable by imprisonment for three or more years, and that involve: unlawful conduct by a

person that causes, or is intended to cause, a benefit to the value of at least $10,000 for that

person or another person; or unlawful conduct by a person that causes, or is intended to

cause, a loss to the Commonwealth or another person of at least $10,000. An indictable

offence is one that may be dealt with on indictment, even if it may also be dealt with as a

summary offence in some circumstances.31

The courts have applied the forfeiture measures under the Proceeds of Crime Act 1987 (Cth)

to taxation and corporate law offences.32 It seems likely that the courts will make similar

forfeiture orders under the current Proceeds Act. The ATO is aware of its rights under both

the Crimes Act and the Proceeds Act.33 It is extremely difficult for an accused to be

successful if a claim under the Proceeds Act is made against it.

29 Hookham v The Queen (1994) 181 CLR 450 [7]. 30 Proceeds Act Part 2–6. 31 Ibid section 338. 32 Examples of how forfeiture measures were applied under this Act include: Studman v DPP (Cth) [2007] NSWCA 285; DPP (Cth) v Dawson [2006] WADC 55; R v Gaitanis [1998] VSCA 57; Beard v The Queen [2003] WASCA 262. 33 ATO, Fraudulently Altered or Created Income Tax Returns or Activity Statements, PSLA 2008/11 (26 June 2008).

24 Taxpayer Rights

Finally, before leaving the topic of tax crimes it should be noted the Commissioner does not

have the power to issue a search warrant (see section 3.14 below for discussion of the

Commissioner’s information gathering powers). Where the issue of a search warrant is

necessary, the Commissioner can request the assistance of the Australian Federal Police. An

ATO officer or other person may accompany and assist the police in the execution of the

warrant.34

The foregoing reflects the fact that taxpayers have the right to defend themselves in the event

of criminal charges being laid due to an alleged breach of the tax laws. In defending

themselves defendants are generally entitled to accept the prosecution must prove guilt by

evidence other than the compulsory answers or assistance of the accused. Individual

taxpayers may represent themselves in all courts and tribunals but it is advisable that legal

representation be obtained.

This report now considers non-criminal provisions of the various tax laws that afford

taxpayer’s rights.

34 Section 3G Crimes Act 1904; Kennedy v Baker [2004] FCA 562.

25 Taxpayer Rights

3. Taxation Administration Act 1953 (TAA)35

3.1 Objection Decisions

Part IVC TAA deals with objections by taxpayers to assessments, decisions and

determinations made by the Commissioner and objections to the content of or failure to make

a private ruling. This section first considers assessments, decisions and determinations, and

then turns to the question of private rulings. This report only considers those provisions that

may afford taxpayers some rights.

Taxpayers dissatisfied36 with an assessment, determination, notice or decision may object to

it.37 Such an objection is known as a ‘taxation objection’.38 Various parts of the tax laws

make provision for challenges under Part IVC. No such parts are specifically itemised in

this report or the table appended thereto. If the legislation does not provide for a challenge

under Part IVC39 then some other remedy must be sought such as under the Administrative

Appeals (Judicial Review) Act 1977 (AD(JR)A) reviewed in section 9.3 below.

There are time periods specified in the TAA for a taxpayer to notify the Commissioner of the

challenge and the grounds for the challenge: section 14ZW. These provisions are complex

and care must be taken to ensure one complies with the prescribed time limits. These limits

are generally either 4 years or 2 years or 60 days depending on the nature of the taxation

objection.

If a taxpayer notes its objection outside the time limits it may request the Commissioner to

accept the objection as having been lodged in time. If the Commissioner declines to do so

the taxpayer has the right to approach the Administrative Appeals Tribunal (AAT) to extend

these periods.40 In order to be successful the taxpayer should inter alia give an explanation

for the delay and show that it has an arguable case on the merits of the objection.41 A

taxpayer does not have to show that it will ultimately be successful in the proceedings before

the AAT or Federal Court. There is no onus imposed on taxpayers in these applications but 35 All references in this section are to the TAA. 36 CTC Resources NL v. Federal Commissioner of Taxation (1994) 48 FCR 397 CTC discusses what is meant by dissatisfied. 37 Section 14ZL (1). 38 Section 14ZL (2). 39 Examples of where Part IVC either applies or does not apply appears from CCH on line tax library [¶972-540] Application of Pt IVC to taxation objections. 40 Section 14 ZX. 41 PS LA 2003/7 Taxation objections — late lodgement. The leading case on this is Brown v FC of T 99 ATC 4516; [1999] FCA 563.

http://tinyurl.com/neorfrv

26 Taxpayer Rights

the court must be satisfied that extending the time limits is the correct decision. Taxpayers

are often successful in these types of applications.

Once the objection has been lodged and is either in time or deemed to be in time the

Commissioner is obliged to give a decision as to whether he accepts or rejects the taxation

objection either in part or in whole. This decision is referred to as an objection decision.42

When formulating the objection decision, the Commissioner is not limited to the taxpayer’s

grounds of objection. The Commissioner may consider any matters relevant to arrive at the

correct tax position. If the Commissioner does not make a decision within the time periods

specified in the legislation a taxpayer may cause a notice to be served on the Commissioner

to make the objection decision within a period of 60 days.43 If the Commissioner still fails to

make a decision he is deemed to have rejected the objection in its entirety.44 A taxpayer may

withdraw its taxation objection at any time before the 60 day notice period has expired if the

Commissioner has not responded.45

Once the objection decision has been made the taxpayer has the right to approach either the

Federal Court or AAT to adjudicate on its objection. Before proceedings are commenced both

the AAT and the Courts usually require the parties to have first sought resolution of their

disputes directly with the Tax Office. This may involve one or both of the following:

• attempts to resolve the dispute before the taxpayer makes a formal objection; or

• attempts to resolve the dispute after the taxpayer makes a formal objection.

If these attempts are unsuccessful and if the objection decision is a reviewable objection

decision, the taxpayer may apply to the AAT for review of the decision or appeal to the

Federal Court.46 All objection decisions are reviewable objection decisions unless it is an

ineligible income tax remission decision.47 If the objection decision is not a reviewable

objection decision then the taxpayer may only proceed in the Federal Court: section 14ZZ. In

all cases where an objection decision is challenged:

42 Section 14 ZY. 43 Section 14 ZYA. 44 Ibid. 45 FCT v McGrouther [2015] FCAFC 34. 46 Section 14 ZZ. 47 Section 14 ZQ. An ineligible income tax remission decision is defined in section 14 ZS.

http://taxinstitute.us7.list-manage.com/track/click?u=59eba50675aaae33d12f1f12c&id=0f59febc41&e=283059d2ed

27 Taxpayer Rights

• the taxpayer (the party who commences the proceedings) is referred to as the

applicant and the Commissioner as the respondent; and

• the applicant (taxpayer) has the burden of proving, if the taxation decision concerned

is an assessment, that the assessment is excessive or otherwise incorrect and what the

assessment should have been, or in any other case-that the taxation decision should

not have been made or should have been made differently.48

In Dalco49 the court discussed the term ‘excessive’ and found it refers to the amount of the

assessment and not to any unauthorised step in the process of its calculation.

The onus referred to in the second bullet point above is a fundamental issue for taxpayers.50

The Commissioner does not have to prove anything. It is the taxpayer that must prove its

case on a balance of probabilities. There are provisions in the tax laws that provide, subject to

a Part IVC challenge, that once an assessment is made they are deemed to be correct and any

defect in process in making that assessment is irrelevant.51 Regardless of the type of

assessment (default, ordinary or amended) the onus is on the taxpayer. The taxpayer carries

this burden throughout any appeals from the AAT or Federal Court even if the appeals are

initiated by the Commissioner.52

Time periods are prescribed as to how soon after an objection decision is received before

proceedings must be commenced. Where a challenge to an assessment is made the time

period is 60 days for both the AAT and Federal Court.53 If proceedings are commenced after

the 60 day period the AAT has power to extend these periods.54 Essentially the same criteria

for a late notice of objection must be placed before the tribunal to enable it to make a

decision. The Federal Court does not have power to extend this 60-day period.

Generally, it is only the taxpayer who has the right to make application to the AAT or Federal

Court against an objection decision. Any other person ‘whose interests are affected by the

decision’ being reviewed may apply in writing to the Tribunal to be made a party to the

48 Section 14 ZZK and section 14 ZZO. 49 FCT v Dalco (1990) 168 CLR 614. 50 For an example of a case where the taxpayer did not discharge this onus see Rigoli v Commissioner of Taxation [2016] FCAFC 38. 51 Section 350-10; Section 175 Income Tax Assessment Act 1936 (ITAA 36). 52 FCT v Mantle Traders Pty Ltd (1980) 11 ATR 348. 53 Section 14 ZZC read with section 29 Administrative Appeals Tribunal Act 1975 (AATA) for proceedings in the AAT. For proceedings in the Federal Court see section 14ZZN. 54 Section 29 (7) and (8) AATA.

28 Taxpayer Rights

proceedings.55 The Tribunal has discretion whether to allow the relevant person to become a

party to the proceedings but it can only do so if it is satisfied that the applicant consents to

that happening.56 If the Tribunal decides that the interests of the person applying to be a

party are affected by the decision being reviewed then its decision is final. However, if the

Tribunal decides that the interests of that person are not so affected then that person may

appeal to the Federal Court. This appeal is different to the right of appeal from the Tribunal to

the Federal Court on an objection decision in that such appeal is limited to a question of law,

whereas this appeal right is not so limited.

Both the AAT and Federal Court have their own rules once an objection decision comes

before them for adjudication.57

With challenges to objection decisions taxpayers should note:

• the grounds of objection relied on should be clearly set out;

• the AAT and Federal Court have the power to refer both the taxpayer and

Commissioner to undertake some alternative dispute resolution (ADR) process before

the matter comes before it as a hearing;58

• before the parties can proceed in the Federal Court they must comply with the Civil

Disputes Resolution Act 2011 (CDRA). Section 4 CDRA requires the applicant

(taxpayer) to demonstrate they have taken genuine steps to resolve the matter, and if

they have not, they must specify reasons why not. In return, the respondent

(Commissioner) who is given a copy of a genuine steps statement filed by the

applicant, must state whether they agree with it or not;

• the proceedings in the AAT are less formal than in the Federal Court;

• the AAT cannot make an adverse cost order against the unsuccessful party whereas

the Federal Court usually does;

• if an amended assessment is in dispute a taxpayer may challenge only that part of the

assessment to which the amendment refers;59

55 See Re Control Investment Pty Ltd (1980) 3 ALD 74 for discussion of what is meant by ‘whose interests are affected by the decision.’ 56 Section 14 ZZD. 57 See for example sections 14ZZA to 14 ZZJ of the TAA read with the provisions of the AATA for proceedings in the AAT. For proceedings in the Federal Court see Federal Court of Australia Act 1976 and The Federal Court Rules 2011. 58 The ADR options utilised at the AAT are: conferences, conciliation, mediation, case appraisal and neutral evaluation. 59 Section 14 ZV.

29 Taxpayer Rights

• if a dispute proceeds to the AAT or Federal Court or even on appeal from an adverse

finding by a tribunal or court of first instance the liability for the tax debt created by

the disputed assessment is not suspended;60

• notwithstanding the foregoing a court has the power to stay execution on that debt.61

This power is exercised sparingly.62 The AAT does not have this power.63 Some

personal hardship arising from execution has to be shown by the taxpayer (discussed

in section 3.11 below). The practice of the Commissioner is generally to require

payment of half the disputed amount unless he believes it expedient to require

payment of the full amount pending the decision on the objection decision. If there is

a finding in favour of the taxpayer by the AAT or Federal Court on the challenge the

Commissioner will refund the monies paid together with interest;64

• the AAT is not bound by the rules which govern the admissibility of evidence

whereas the Federal Court is so bound; and

• the AAT is empowered to make a full administrative review of the objection decision,

and in doing so may exercise afresh the powers and discretions of the Commissioner65

but only for the purposes of making the decision under review. They do not include

any powers and discretions which may be vested in the decision maker for some other

purpose.66

If after the process has commenced and with the leave of the tribunal or court hearing the

matter a taxpayer may apply to amend its grounds of objection even if they require

consideration of matters not considered by the Commissioner when first making an

assessment.67 The right to amend is not absolute and the court has discretion to refuse such

an application. The closer to the trial the application is made the less likely the prospects of

success.68

60 Section 14 ZZM and section 14 ZZR. 61 DFC of T v Australian Machinery & Investment Co Pty Ltd (1945) 8 ATD 133. 62 Snow v DFC of T 87 ATC 4078. 63 Section 14ZZB TAA read with section 41 AATA; Coshott and Commissioner of Taxation [2013] AATA 822. 64 PS LA 2011/4 Recovering disputed debts. See also section 5 below dealing with the Taxation (Interest on Overpayments and Early Payments) Act 1983. 65 FCT v Jackson 90 ATC 4990, 5000. 66 Fletcher & Ors v FCT 88 ATC 4834, 4845. 67 Sections 14 ZZK and ZZO. Lighthouse Philatelics Pty Ltd v. Federal Commissioner of Taxation 91 ATC 4942. 68 See for example Gilder v FCT 91 ATC 5062; Lambert v FCT 2013 ATC ¶10-322.

30 Taxpayer Rights

The Federal Court does not have the power to permit a taxpayer to amend its grounds of

objection when the matter comes before it on appeal from the AAT. Section 44(1) AATA

provides that an appeal from the AAT to the Federal Court must be on a question of law only.

In Liedig69Justice Hill considered the ability of the Federal Court, sitting as a court of appeal

from an AAT decision, to amend a taxpayer’s grounds of objection and stated:

At the outset of the proceedings before me counsel for Mr Liedig applied, by way of

motion, for orders that Mr Liedig be permitted now to amend his notices of objection

to permit him to argue that the amounts in question were allowable deductions under

s. 51(1) of the Act. However, counsel rightly conceded that this Court had no power

to permit such an amendment. Because the objection decisions were made after 1

March 1992, the provisions of Part IVC of the Taxation Administration Act 1975

(Cth) (“the Administration Act”) were applicable rather than the provisions of s.

190(a) of the Act. Section 14ZZO of the Administration Act confers power on the

Court to extend the grounds of objection in an appeal brought directly to it, just as s.

14ZZK of the same Act gives that power to the Tribunal in respect of an objection

decision referred to it. But nowhere in the Act is the Court given the power to extend

grounds of objection where an application for review has been made to the Tribunal.

The Court’s jurisdiction, where the matter has been referred to the Tribunal, is limited

to that conferred upon it by s. 44 of the Administrative Appeals Tribunal Act, namely,

to determining a question of law. Although the Court is empowered by s. 44(4) to

make such orders as it thinks appropriate by reason of its decision on that question of

law, and the Court has the powers referred to in s. 44(5) of that Act, those powers do

not extend to exercising discretions conferred upon the Tribunal by statute and upon

the Tribunal alone.

Counsel for Mr Liedig therefore sought to take a different tack. He sought, and was

granted, leave to amend the notice of appeal to raise a ground that the Tribunal erred

in law in not granting an extension of the grounds of the taxpayer’s objection on the

basis that it was bound so to do on its own initiative or at least bound to raise the

matter and subject to permitting the Commissioner to be heard upon it, to extend the

grounds of objection…

69 Liedig v FCT 94 ATC 4269, 4271-4272.

31 Taxpayer Rights

For the taxpayer to succeed in the present case it would be necessary to show that

there was some legal obligation imposed upon the Tribunal, on its own motion, to

raise the question of extending the grounds of objection. With respect there is no such

obligation. There is conferred upon the Tribunal a power to extend grounds of

objection but no obligation is imposed upon it to do so of its own volition. In these

circumstances the failure of the Tribunal to consider whether to extend the grounds of

objection in circumstances where neither the taxpayer nor the Commissioner has

requested it so to do and where the Commissioner has been given no right to advance

any argument to the contrary could not involve the Tribunal in having erred in law.

This being the case, the amended ground of appeal must fail.

The effect of the foregoing decision is that:

• a court sitting as a court of appeal from an AAT decision does not have the power to

amend a taxpayer’s grounds of objection; and

• the AAT does not have the power on its own volition to vary a taxpayer’s grounds of

objection.

The position may not be as clear where there is an appeal from a single judge sitting as a

court of first instance. Here appeals are not limited to questions of law. On appeal from a

single judge it seems a court will not permit an amendment of the grounds of objection on

appeal. Even though an appeal court has the power to allow new evidence this discretion

would be exercised very rarely. This discretion does not seem to extend to effectively

changing the basis of a challenge to an assessment on appeal.

The position described above as to the rights of a taxpayer to amend its grounds of objection

is the same where the Commissioner seeks to amend the basis on which a taxpayer is sought

to be held liable. As noted by Kitto J ‘No conduct on the part of the commissioner could

operate as an estoppel against the operation of the Act.’70 Thus in a tribunal or court of first

instance the Commissioner could amend the basis on which it was contended a taxpayer was

liable to tax. However, if the Commissioner has exercised his discretion in a particular way it

seems he would not be permitted to seek to exercise that discretion differently even in a court

of first instance. There can be only one conclusion when exercising discretion.

70 Federal Commissioner of Taxation v Wade [1951] HCA 66 [7].

32 Taxpayer Rights

On appeal the Commissioner would not be permitted to change the grounds of assessment. In

Dismin the Federal Court on appeal unanimously held that:

Consistently with the authorities to which we have referred, we are of the view that

the Commissioner should not now be allowed to argue, for the first time on appeal, a

basis for assessment not argued at first instance and a basis, had it been argued at first

instance, which would have called for consideration by the appellant whether to lead

evidence not called having regard to the manner in which the case was run below.71

If a taxpayer determines that an error has been made in its return it is not obliged to proceed

by way of litigation to challenge an assessment made on the incorrect information.

Section 170(5) ITAA 36 provides:

The Commissioner may amend an assessment even though the limited amendment

period has ended if, before the end of that period, the taxpayer applies for an

amendment in the approved form. The Commissioner may amend the assessment to

give effect to the decision on the application.

A taxpayer can request the Commissioner to amend an assessment if information contained in

their return is incorrect.72 They do so by seeking to amend the information furnished with

their return or other documents lodged with their return.

Such an amendment results in a notice of amended assessment, showing the new amount

payable or refundable. If the amendment increases the tax payable the ATO would

presumably treat it as a voluntary disclosure of unpaid tax. This means the ATO are likely to

apply concessional treatment to any penalties that accrue (see section 3.13 below). A

taxpayer may seek to amend a return for a particular income year more than once although

the time limits in which the Commissioner may amend an assessment under section 170

ITAA 36 limits this right.

Even where there is an objection by a taxpayer the Commissioner may accept in whole or in

part the contentions of the taxpayer either because of attempts by the parties to resolve the

dispute between them or because the Commissioner accepts in whole or in part the taxpayer’s

contentions. If the Commissioner accepts the objection in its entirety that would presumably

71 Dismin Investments Pty Ltd v Federal Commissioner of Taxation [2001] FCA 690 [36]. 72 See for example Case 5/2001 [2001] AATA 831.

33 Taxpayer Rights

be the end of the matter. If acceptance is only in part then the taxpayer must determine

whether or not to proceed on the amount still in dispute by way of Part IVC.

The effect of the foregoing is that, subject to the limitation on the powers of the

Commissioner to amend an assessment in terms of the tax laws, a taxpayer may request an

amendment to the information supplied to the Commissioner in connection with their return

on multiple occasions.

Once the proceedings have been launched in the AAT or Federal Court both parties are

entitled to know precisely what case they have to meet. The AAT73 and Federal Court have

power to order the Commissioner to furnish additional information or documents to facilitate

the taxpayer understanding what case it has to meet.

If an individual taxpayer institutes a challenge under Part IVC or commences proceedings in

any court for other forms of relief they are entitled to represent themselves. They obviously

may have representation if they wish and generally it is advisable that they do so. The

representation in the AAT, unlike the Federal Court, need not be by a legal representative.74

If the taxpayer is a company they are obliged to obtain legal representation in the Federal

Court unless leave of that court is granted for the taxpayer to be represented by an officer of

that company.75

In both the AAT and Federal Court a hearing will be held. Each party will have their chance

to lead evidence and call witnesses. Generally, proceedings before the AAT or any court are

public.

Both the AAT and Federal Court must furnish reasons when handing down a decision.

The AAT is obliged to give reasons for any decision made by it either orally or in writing.76

Where its decision is not in writing a taxpayer may request the Tribunal to give a statement in

writing of the reasons for its decision, and the Tribunal shall, within 28 days after receiving

the request, give such a statement.77 Such reasons must include its findings on material

questions of fact and a reference to the evidence or other material on which those findings

were based. Section 43 (5AA) AATA then continues that when handing down a copy of its 73 See for example sections 37 and 38 AATA. 74 Section 32(1) AATA. 75 Rule 4.01 Federal Court Rules 2011. 76 Section 43(2) AATA. 77 Section 43(2A) AATA.

34 Taxpayer Rights

decision the Tribunal must inter alia advise the party to whom the decision is handed of that

party’s right to appeal to a court on a question of law.

What is meant by ‘reasons’ was explained in Telstra78 as follows:

In summary, the Court will not be concerned with looseness in the language of a

tribunal nor with unhappy phrasing of a tribunal’s thoughts. Further, the Court will

not construe the reasons for the decision under review “minutely and finely with an

eye keenly attuned to the perception of error”.

Additional principles specifically relevant to review of reasons provided by the

Tribunal include that:

o There is no requirement for the Tribunal to refer to every piece of

evidence and every contention that may be advanced.

o There is no requirement that the reasons of the Tribunal provide an

unarguable logical progression to a conclusion: (references omitted)

As French J explained in Secretary, Department of Employment and Workplace

Relations v Homewood [2006] FCA 779; 91 ALD 103 at [40]:

... the Tribunal will have discharged its duty under s 43 if its reasons disclose

its findings of fact, the evidence on which they were based and the logical

process by which it moved from those findings to the result in the case.

Yusuf 79 considered what is understood by the phrase ‘material question of fact’ (the

legislation considered was not the AATA but the principles enunciated are of application).

The majority in the High Court said:

It was said that “material” in the expression “material questions of fact” must mean

“objectively material”. Even if that were right, it would by no means follow that the

Tribunal was bound to set out findings that it did not make… All that s 430(1)(c)

obliges the Tribunal to do is set out its findings on those questions of fact which it

considered to be material to the decision which it made and to the reasons it had for

reaching that decision. ..It ensures that a person who is dissatisfied with the result at

which the Tribunal has arrived can identify with certainty what reasons the Tribunal

had for reaching its conclusion and what facts it considered material to that

78 Telstra Corporation Limited v Hunter [2016] FCA 318 [73-75]. 79 Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; 206 CLR 323 per McHugh, Gummow and Hayne JJ [68-69].

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conclusion… The provision entitles a court to infer that any matter not mentioned in

the s 430 statement was not considered by the Tribunal to be material. This may

reveal some basis for judicial review by the Federal Court under Pt 8 of the Act, or by

this Court in proceedings brought under s 75(v) of the Constitution.

A full bench of the Federal Court in Kent Osborne80noted the following about the reference

in section 43 AATA to the ‘reasons’ being either oral or in writing:

The nature of the distinction intended between reasons given orally and reasons given

in writing is not absolutely clear… In my opinion, reasons are given in writing within

the meaning of s.43(2) if and when they are issued by the Tribunal in written form,

whether or not they have been delivered orally in the first place. Of course, if very

informal reasons are delivered orally, and a request is then made under sub-s.43(2A),

the Tribunal will be unlikely to comply with sub-s.(2B) unless more elaborate, written

reasons are then produced. ..Where there are (as is usual in the Tribunal) no pleadings

or other documents formally defining the questions which the parties desire to have

decided, sub-s.(2B) does not necessarily and always require discussion of every point

which might have been raised before the Tribunal, whether or not it has been argued.

Section 66B (1) AATA provides that:

The Tribunal may, by any means it considers appropriate, publish its decisions and

the reasons for them.

The AAT thus has discretion as to the means by which it publishes its reasons thereby

effectively making them accessible to all who wish to see what was stated in the judgment.

It is open to the Federal Court to give oral reasons for judgment immediately prior to

pronouncing its judgment at the end of the hearing. The more usual course is for the court to

reserve its judgment at the end of the hearing, pronouncing judgment (with written reasons)

at a later time.

Unlike the AAT, there is no mechanism whereby the Federal Court can be requested to

provide written reasons for its judgment. However, the Full Court of the Federal Court has

held that ‘in all cases it is important that parties to litigation are able to understand the

80 Re Commissioner of Taxation v Kent Osborne [1990] FCA 362.


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36 Taxpayer Rights

reasons why the Court arrived at its decision.’81 The High Court described the normal

practice of courts as follows:

The decision in that case that the failure to give reasons was an error in law may have

broken new ground, but there was nothing new in saying that judges are under an

obligation to give reasons where that is necessary to enable the matter to be properly

considered on appeal. It has long been the traditional practice of judges to express the

reasons for their conclusions by finding the facts and expounding the law (see Deakin

v Webb (1904) 1 CLR 585 at 604–5 and Jacobs v London County Council [1950] AC

361 at 369) and there have been many cases (some of which are collected in De

Iacovo v Lacanale [1957] VR 553 at 558–9) in which it has been held that it is the

duty of a judge or magistrate to state his reasons.82

Justice Monahan in De Iacovo83 stated:

In Broom’s Constitutional Law (1st ed., 1866), at pp. 152-3, the learned author

observes: “A public statement of the reasons for a judgment is due to the suitors and

to the community at large--is essential to the establishment of fixed intelligible rules

and for the development of law as a science...A judgment once delivered becomes the

property of the profession and of the public; it ought not, therefore, to be subsequently

moulded in accordance with the vacillating opinions of the judge who first

pronounced it.” In my view this statement has general application to all persons

exercising judicial functions. From time to time appellate courts have pointed out the

difficulties which result from the fact that reasons have not been given for judicial

pronouncements…Such a statement is desirable for the information of the parties, and

in order to afford assistance to the Court of Appeal in the event of there being an

appeal... In Robinson v Robinson, [1898] P 153, and again in Cobb v Cobb, [1900] P

145, it was stated that when making orders of this kind, from which an appeal lies to

other courts, it is the duty of the magistrate, not only to cause a note to be made of the

evidence, and of his decision, but to give the reasons for his decision and to cause a

note to be made of his reasons…Elaborate judgments are not required, but the reasons

which lead the magistrate to make his order must be explicitly stated.

81 Bourke v Beneficial Finance Corp Ltd (1993) 47 FCR 264 82 Public Service Board of NSW v Osmond [1986] HCA 7; (1986) 159 CLR 656 per Gibbs CJ [10]. 83 De Iacovo v Lacanale [1957] VR 553, 566-557.

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The effect of the foregoing is that it is a principle that proceedings and all evidence and

information before the AAT and court be made public and that the decision and reasons for

the decision be published. The AAT (as does the Federal Court considered below) does, have

power (particularly where confidentiality of parties or evidence is important) to:

• determine that a hearing be held in private or prescribe who may be present at a

hearing;

• give directions prohibiting or restricting the publication or other disclosure of

information that may reveal the identity of or concerning any witness or party to the

proceedings or any party related or associated with any party to the proceedings; and

• give directions prohibiting or restricting the publication or other disclosure of

information that relates to the proceedings; or evidence or information about

evidence; or information lodged or given to the AAT.84

The Federal Court of Australia Act 1976 (FCA) has similar provisions. It can make

suppression or non-publication orders provided the court takes into account the fact that a

primary objective of the administration of justice is to safeguard the public interest in open

justice.85To this end it can make similar orders to those of the AAT set out above.86 The

Court may make such orders on its own initiative or on the application of a party to the

proceeding concerned; or any other person considered by the Court to have a sufficient

interest in the making of the order.87 These orders can be made at any time and may be made

subject to such exceptions and conditions as the Court thinks fit and specifies in the order.88

These orders may be interim orders or for such period as the court deems appropriate.89

Failure to comply with such an order is an offence.90

This report now turns to challenges to private rulings.

3.2 Challenges to Private Rulings

Taxpayers can object to private rulings provided the Commissioner has not already made an

assessment in respect of the matters raised in the ruling or the ruling refers to withholding tax

84 Section 35 AATA. 85 Section 37AE FCA. 86 Section 37 AF FCA. 87 Section 37 AH (1) FCA. 88 Section 37 AH (3-4) FCA. 89 Section 37 AI FCA; Section 37 AJ FCA. 90 Section 37 AL FCA.

38 Taxpayer Rights

that has become payable.91 (Rulings are discussed in section 3.16 below). As is the case with

other challenges under Part IVC time limits are prescribed as to when a taxpayer must

challenge a private ruling.92

There are two forms of challenge associated with a private ruling:

• The Commissioner failing to furnish a ruling after notice is given to do so; and

• A ruling is given and the taxpayer does not agree with its conclusion.

In the former case once a taxpayer has requested a private ruling and 60 days have elapsed

from the date of the request,93 and the Commissioner has not declined to make a ruling nor

has he issued a ruling, the taxpayer can put the Commissioner on notice to make a ruling.94 If

the Commissioner still has not made the ruling or declined to do so within 30 days of the

notice the taxpayer may object under Part IVC. In such a case the taxpayer must lodge a

draft private ruling with their objection.95

Where a ruling has been made and the taxpayer is dissatisfied with it, the ruling is deemed to

be a taxation decision making it capable of challenge under Part IVC.96

A taxpayer may not note an objection against an issue raised in a ruling and again on an

assessment based on that ruling unless the grounds relied upon in the later challenge could

not have been raised in the original objection.97

A taxpayer may withdraw a request for a ruling at any time before the ruling is made.98

In carrying out a review of a private ruling issued by the Commissioner the Federal Court has

held that:

In reviewing the Commissioner’s opinion on the application of the law to the

specified scheme, the only material to which the court can have regard is the ruling

and documents identified in the description of the scheme which were either provided

91 Section 359-60 (3). 92 Section 14 ZW. 93 This 60-day period can be extended under certain circumstances. Section 359-50; Section 357-120. 94 Section 359-50. 95 Section 359-50. 96 Section 359-60. 97 Section 14 ZVA. 98 Section 359-10.

39 Taxpayer Rights

by the applicant or were used by the Commissioner: Bellinz v FCT [1998] FCA 615;

(1998) 84 FCR 154 at 160; [1998] FCA 615; 39 ATR 198 at 204; 98 ATC 4634 at

4639; [1998] FCA 615; 155 ALR 220 at 226. The court is confined by the scheme

description in the ruling, which remains constant throughout any appellate process.99

And

In describing an arrangement, the Commissioner is entitled to incorporate by

reference a description found in a document. That is not a licence for the Tribunal, on

review, itself to examine those documents to the end of making a finding of fact

which is at variance with or not found in the Commissioner’s description of the facts

of an arrangement for the purposes of the ruling. Nor can the Tribunal draw

inferences of fact which are at variance with or not found in the description the

Commissioner has given of the arrangement.100

3.3 Appeals from AAT and Federal Court as Courts of First Instance

An unsuccessful party in the AAT has the right to appeal to the Federal Court against the

decision provided it is on a question of law.101 This appeal must be noted within 28 days102

after the judgment against which the party wishes to appeal has been handed down. If the

taxpayer is late in noting this appeal the Federal Court can extend the time periods.103 If

unsuccessful in the Federal Court and the appeal from the AAT was heard by a single judge a

taxpayer has the right to appeal against that decision to the full bench (3 judges) of the

Federal Court. If the original appeal was heard by three judges then in such instance the

unsuccessful party may appeal to the High Court but only if leave has been granted by that

court to do so.

An appeal from a decision of a judge at first instance is to the full bench of the Federal Court

and is not limited to a question of law.

99 Rosgoe Pty Ltd v Commissioner of Taxation [2015] FCA 1231 [16]. 100 Ibid [20]. 101 Section 44 (1) AATA. It is often not easy to determine if an issue is a question of law or fact. 102 Section 44 AATA. 103 Rule 33.13 Federal Court Rules 2011.


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3.4 Referral to a Full Bench of the Federal Court from AAT

Pursuant to section 45 AATA, the Tribunal may, of its own motion, or at the request of a

party, refer a question of law arising in a proceeding before the Tribunal to the Federal Court

for decision. Subsection 45(2A) AATA states the matter is to be heard in the Full Court of the

Federal Court. The Full Court exercises its appellate jurisdiction, because it is hearing a

matter referred to it by a lower court or tribunal. This procedure of referring a question of law

to the Full Federal Court can be very useful where there are important questions of law which

come before the Tribunal. The procedure provides a ‘fast track’ method of obtaining a

decision of significant precedential value on the particular question of law. When such an

issue is referred to the Federal Court the proceedings are stayed in the AAT until the Federal

Court has delivered its decision on the point of law. The matter is then referred back to the

AAT which must determine the case based on the legal findings of the Federal Court

3.5 Departure Prohibition Orders

Under certain circumstances, the Commissioner can issue without prior notice, and also

physically enforce, a departure prohibition order (DPO). A DPO prevents a person who is

subject to a tax liability leaving the country: Section 14S. The penalty for breaching a DPO is

a maximum fine of $8,500, one year’s imprisonment or both: Section 14R. Where a

departure prohibition order is made the Commissioner must cause the person to be informed

of the order.

Where a departure prohibition order is in force the Commissioner may of his own volition or

on application revoke or vary the DPO provided certain criteria are met.104 The

Commissioner must give notice to all persons who received notice of the DPO that it is

revoked or varied.

The Commissioner may where a DPO has been issued on application by the taxpayer issue a

departure authorisation certificate permitting the taxpayer to leave Australia for a limited time

provided certain criteria set out in section 14U are met.

A person aggrieved by the making of a DPO may appeal to the Federal Court or the Supreme

Court of a State or Territory against the making of the DPO.105 This appeal is not an appeal

under Part IVC of the TAA. Applications may be made to the Tribunal for review of 104 Section 14 T. 105 Section 14 V.

41 Taxpayer Rights

decisions of the Commissioner under sections 14T (revocation or variation of a DPO) or 14U

(issue of a departure authorisation certificate).106

The onus of proof that the DPO is invalid generally rests with the tax debtor. But given the

potentially oppressive and serious consequences of a DPO, the Courts have also found that

the Tax Office has to demonstrate that recoverability of the tax liability will be adversely

affected by the departure of the taxpayer.107

This report now turns to Schedule 1 of the TAA.

3.6 PAYG

The PAYG system has 2 components: PAYG withholding and PAYG instalments. The

latter affords no taxpayer rights and is not considered.

Under the PAYG withholding system amounts are deducted from particular kinds of

payments or transactions. The entity that withholds these monies is obliged to pay the amount

to the Commissioner.108 These withheld amounts are credited against any tax that might be

payable in respect of assessable income derived by an individual. A summary of the items

covered by this regime appear in the table to section 10-5 (1). Examples include payments

of salary, payments to directors of companies and unused leave payments. An entity may

enter into a voluntary agreement with an individual to withhold tax even though the rules do

not make provision for this provided it is under an arrangement which, in whole or in part,

involves the performance of work or services (whether or not by the individual).109 These

rules do not apply to exempt income, or income that is otherwise not assessable.110

The amount required to be withheld from a payment is to be worked out under the

withholding schedules made under section 15-25. However, if the regulations prescribe how

the amount is to be worked out, then it is to be worked out under the regulations.111

An entity that withholds an amount is discharged from all liability to pay or account for that

amount to any entity other than the Commissioner.112 A failure to withhold an amount

106 Section 14 Y. 107 Troughton v Deputy Commissioner of Taxation [2008] FCA 18. 108 Section 6-5 (2). 109 Section 12-55. 110 Section 6-5 (3). 111 Section 15-10. 112 Section 16-20.

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42 Taxpayer Rights

required by Division 12 is a strict liability offence.113 In the alternative to criminal

proceedings the Commissioner may elect to impose an administrative penalty.114

If more than a taxpayer’s assessed tax liability has been deducted as a withholding payment

the Commissioner is obliged to refund that excess. If the fact of the overpayment is

discovered early the taxpayer may obtain a refund from the entity that withheld the

amount.115

Within 14 days after the end of a financial year, the payer must give a payment summary (and

a copy of it) to the party from whom monies were withheld during the year. This summary

must cover inter alia each of the withholding payments made, except one covered by a

previous payment summary given by the payer to the recipient under section 16-160. 116

The effect of section 18-15(1) is that the taxpayer who had withholding payments deducted

from amounts due to it is entitled to credits by the Commissioner for the sums withheld

irrespective of whether the paying entity has accounted to the Commissioner for these

monies. Note that for the taxpayer to be successful in claiming these credits, they must

discharge the onus of proving that the amounts were in fact deducted. Where the withholding

is represented by journal entries this may not be sufficient to discharge this onus. There has

to have been a legitimate process of withholding undertaken by the payer.117

Section 20 -80 sets out those provisions in the PAYG rules that may be challenged under Part

IVC.

3.7 Tax Receipts

The Commissioner must provide taxpayers with a tax receipt for an income year if they are

an individual and the total tax assessed to that taxpayer for the income year is $100 or more

(or such other amount as determined by the Commissioner from time to time).118 The tax

receipt must include information inter alia about how the total tax assessed to that taxpayer

for the income year is notionally used to finance different categories of Commonwealth

government expenditure.

113 Section 16-(20-25). 114 Section 16-30. 115 Section 18-65-18-80. 116 Section 16-155. 117 Cassanti v Commissioner of Taxation [2010] FCA 641. 118 Section 70-5.

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3.8 Release of Excess Concessional Contributions

Excess concessional contributions are included in assessable income. If a taxpayer has

excess concessional contributions for a financial year, the Commissioner must make a written

determination stating the amount of those excess concessional contributions; and the amount

(if any) of the excess concessional contributions charge the taxpayer is liable to pay for the

corresponding income year. 119 A taxpayer may object to such a determination under Part

IVC.120

The Commissioner will also forward an election form together with the determination. If the

taxpayer receives an excess concessional contributions determination or an amended

contribution determination for a financial year, the taxpayer may elect to release from their

superannuation interest (usually their fund) an amount not exceeding 85% of the excess

concessional contributions stated in the determination by giving the Commissioner notice of

that intention.121

If the Commissioner advises the taxpayer that the provider did not pay the Commissioner the

contribution the taxpayer may make another election and choose another superannuation

interest from which the withdrawal is to be made. Released concessional contributions are

paid to the Commissioner. The election is not mandatory but once made cannot be revoked.

The taxpayer gets a credit for the released amount. Surplus credits are refunded to the

taxpayer.

3.9 Administration of Indirect Taxes

A taxpayer may request the Commissioner at any time to make an assessment of an indirect

tax.122 The amount payable does not depend on and is not in any way affected by, the making

of such an assessment. Failure to issue an assessment after a request has been made does not

affect the validity of the assessment.123 A decision involving an assessment may be

challenged under Part IVC.124

119 Section 97-5. 120 Section 97-10. 121 Section 96-5(1). 122 Section 105-10. 123 Section 105-20. 124 Section 105-45.

44 Taxpayer Rights

A request to the Commissioner to treat a document as a tax invoice for the purposes of

attributing a credit to a tax period is taken to be a notification of the taxpayer’s entitlement to

such credit.125

Section 105-65 (1) deals with restrictions on GST refunds. As this does not give any rights to

taxpayers it is not considered although a relevant decision may be challenged under Part

IVC.126

A taxpayer may challenge under Part IVC certain GST decisions referred to in the table in

section 110-50(2).

Division 111 gives taxpayers the right to object under Part IVC against decisions disallowing

the whole or part of a claim for a wine tax credit. These decisions are specified in the table to

section 111-50(2).

Division 112 gives taxpayers the right to object under Part IVC against fuel tax decisions.

These decisions are specified in the table to section 112-50(2).

3.10 Assessments

If 6 months have elapsed from the day on which a return for an assessable amount is given to

the Commissioner and no assessment has been issued the taxpayer may give the

Commissioner 30 days’ notice to so issue an assessment. If the Commissioner still fails to do

so the taxpayer may object, in the manner set out in Part IVC to the Commissioner’s failure

to make the assessment.127 This does not apply if the assessable amount is the Division 293

tax payable in relation to an income year in relation to that taxpayer’s taxable contributions

for the income year. Division 293 reduces the concessional tax treatment of certain

superannuation contributions made for very high income individuals: section 293-1.

The Commissioner may amend an assessment of an assessable amount within the period of

review for the assessment.128 A taxpayer may voluntarily extend the review period if

requested to do so by the Commissioner or the Commissioner may apply to the Federal Court

to extend these time periods.129 The Commissioner cannot, subject to certain exceptions

125 Section 105-55 (2A). 126 Section 105-65 (4). 127 Section 155-30. 128 Section 155-35(1). 129 Section 155-35(4).

45 Taxpayer Rights

noted in sections 155-40 to 155-60 further amend an amended assessment of an assessable

amount if the period of review for the assessment has ended.130 Two examples of these

exceptions are that the Commissioner can always amend: to give effect to a decision on a

review or appeal; or if the Commissioner is of the opinion there has been fraud or evasion.

3.11 Collection and Recovery of Tax-Related Liabilities and Other Amounts

As was noted in section 3.1 above irrespective of whether a challenge to an assessment is

noted the Commissioner can enforce payment of the debt arising from an assessment. If

payment is made and the taxpayer is successful in its challenge the Commissioner must

refund the amount overpaid with interest.

The Commissioner has various means of enforcing his right to payment in relation to a tax

related liability. A tax related liability is defined in section 255-1 (1) as a pecuniary liability

to the Commonwealth arising directly under a taxation law (including a liability the amount

of which is not yet due and payable). These methods include execution of a judgment debt,

winding up or bankruptcy proceedings.

There are special rules when the entity that is liable is a liquidator, receiver, an agent winding

up a business for a foreign resident principal or the trustee/administrator of a deceased

estate.131 These are not considered here as the relevant provisions do not afford taxpayers

any rights.

Under section 260-5 the Commissioner may cause a notice described as a garnishee notice to

be issued to a third party who is indebted to a taxpayer whereby the third party is required to

pay to the Commissioner the amount owing to the taxpayer. This obligation is limited to the

amount owing to the taxpayer by the third party or the tax debt whichever is the smaller. If

such payment is made, the liability of the taxpayer is reduced accordingly.132 Under section

260-15 an amount that the third party pays to the Commissioner is taken to have been

authorised by the debtor; and any other person who is entitled to all or a part of the amount;

and the third party is indemnified for the payment.

130 Section 155-65. 131 Subdivisions 255 D –E. 132 Generally on garnishee notices see Clyne v DFC of T 81 ATC 4429.

46 Taxpayer Rights

A garnishee notice may not be challenged under Part IVC.133 Such decisions are, however,

capable of challenge under the AD(JR)A.

Macquarie Health Corp Ltd v Commissioner of Taxation 2000 ATC 4015 held that a

garnishee notice requiring monies to be paid to the Commissioner created a statutory charge

on the debt in favour of the Commissioner, even if the debt was not then due and payable.

This charge remains valid even if the taxpayer is wound up before the due date of such debt.

A garnishee on the debtor of a company served after a winding up order is granted is

invalid.134

In Zumtar 135 the Commissioner had applied for and was granted a Mareva order (considered

in section 11.7 below). Subsequent to this the Commissioner caused a garnishee to be served

on a debtor of the taxpayer. The taxpayer argued that the garnishee was a breach of the

Mareva injunction as this constituted dealing by the taxpayer with assets that had been

enjoined. The court said:

In my opinion, it would be an absurdity if the making of an order restraining an

individual from disposing of or charging, diminishing or dealing in any way with his

assets had the effect of nullifying a s218 notice served upon a person holding moneys

which may ultimately be due to the individual against whom the order was made

(section 218 was the predecessor to section 260-50).

A few points arise with garnishee notices:

• a garnishee may not be issued to a debtor of a company in liquidation.136

• state limitation Acts have no application to federal tax debts notwithstanding section

64 Judiciary Act 2003 which provides that:

In any suit to which the Commonwealth or a State is a party, the rights of

parties shall as nearly as possible be the same, and judgment may be given and

costs awarded on either side, as in a suit between subject and subject.137

133 Rossi v FCT [2015] AATA 601. 134 Bruton Holdings Pty Ltd (in liq) v FC of T & Anor [2009] HCA 32. 135 DFCT v Zumtar 93 ATC 451. 136 Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation [2009] HCA 32 (26 August 2009). 137 DFCT v Moorebank Pty Ltd (1988) 165 CLR 55 (1988) 165 CLR 55.

47 Taxpayer Rights

Notwithstanding the right of the Commissioner to enforce payment of an amount assessed, if

a taxpayer can show payment would cause serious hardship, a court has the power to stay

execution.

In Akers138 Nathan J noted that if payment of tax caused serious hardship this was a basis for

a court to exercise its discretion to stay the enforcement of a tax liability pending a

determination of a Part IVC challenge to an assessment but:

• the obligation to pay tax does not of itself impose an extreme personal hardship;

and

• the possibility that the taxpayer may be bankrupted is not of itself an extreme

personal hardship.139

The foregoing views were accepted by the Queensland Court of Appeal in Denlay140 but the

Court unanimously held serious hardship would ensue if execution were to proceed and the

loss of the taxpayer’s property would have the effect of precluding the taxpayer from

prosecuting their appeals against the Commissioner’s assessment. The judgment continued:

It is preposterous to contend that the loss of the respondents’ entire estate, and with it

any chance of demonstrating that the basis for the assessments was wrong so that they

should not have lost their property, could not be a hardship rightly called extreme. It

is not easy to imagine a greater hardship in this context. Certainly the primary judge

cannot be criticised for so regarding it.141

A word of caution should be noted. Although in the circumstances of Denlay a stay was

granted the court looks at all the circumstances in reaching a decision. A delay in seeking a

stay and challenging an assessment may be destructive of an application to appeal. As was

noted in Denlay:142

The decision in Ho cannot, I think, be criticised. The fact that Ho had not sought to

challenge the assessments in the two and a half years since they were issued was itself

enough to refuse a stay. It was not really a case in which bankruptcy would deprive

138 DFCT v Akers 89 ATC 4725. 139 Ibid 4727. 140 Deputy Commissioner of Taxation v Denlay & Anor [2010] QCA 217 [39-41]. 141 Ibid [50]. 142 Ibid [32].

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48 Taxpayer Rights

the taxpayer of his right of challenge. The taxpayer had never sought to exercise that

right. The remarks relied upon are, therefore, obiter dicta.

Notwithstanding the full bench decision in Denlay granting a stay, the Commissioner sought

to issue a garnishee notice to a debtor of the taxpayer in apparent conflict with that order. An

application was made under the AD(JR)A to set aside the garnishee notice.143 The

application was successful.

Inability to pay is not a basis for a stay of execution even if there is an arguable case on the

merits. Even if execution takes place and bankruptcy will follow may not be a basis for a

stay. But if execution would effectively preclude the taxpayer from challenging an

assessment this may, depending on the facts, give grounds for a stay on the basis of personal

hardship.

In considering the Commissioner’s right to claim payment of an amount assessed sight

should not be lost of the case where the taxpayer is declared bankrupt. Discharge from

bankruptcy:

• operates to release the taxpayer from all debts (including secured debts) provable in

the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has

surrendered his or her security for the benefit of creditors generally; but

• does not affect the right of a secured creditor, or any person claiming through or

under that creditor, to realize or otherwise deal with its security if the creditor does

not prove the secured debt in insolvency.144

If a statutory demand is received by a company, the operation of the demand may be stayed

if there is a genuine dispute about liability. It is not a dispute as envisaged by the

Corporations Act 2001 if the debt is a tax debt and a challenge has been made under Part IVC

as the liability has to be paid notwithstanding such challenge.145

Mossimo146 was a case where a statutory demand under the Corporations Act 2001 was

sought to be set aside by 7 companies. The basis of this application was there was genuine

dispute as the company/ies had offsetting claims against the Commissioner. In delivering

143 Denlay v FCT 2013 ATC ¶20-382.32. 144 Section 153 (1) and (3) Bankruptcy Act 1966. 145 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41. 146 Mossimo Systems International Pty Ltd v Deputy Commissioner of Taxation [2010] NSWSC 1430.

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judgment the court held that by virtue of the provisions of section 175 ITAA 36 and 350-10

TAA which create a conclusive liability in favour of the Commissioner (subject to challenges

under Part IVC) when issuing an assessment it was not open to the taxpayers to argue that

there was no debt owing.

With bankruptcy proceedings it would seem similar criteria for a postponement of the

bankruptcy proceedings may operate as was the case with Denlay. In Ahern an application

was made to stay bankruptcy proceedings pending an appeal against assessment made by the

Commissioner. This was refused by the court of first instance. The Federal Court on appeal

in considering the matter noted that:147

It is well established that an appellate court will rarely interfere with a trial judge’s

exercise of discretion upon an application for adjournment. However, the refusal to

grant an adjournment may in some cases prevent the party seeking it from presenting

his case or defence and in some circumstances this may result in injustice of such kind

or magnitude as to warrant interference on appeal.

The court upheld the appeal noting that:

These cases rest on the broad principle that before a person can be made bankrupt the

court must be satisfied that the debt on which the petitioning creditor relies is due by

the debtor and that if any genuine dispute exists as to the liability of the debtor to the

petitioning creditor it ought to be investigated before he is made bankrupt.

Bankruptcy is not mere inter partes litigation. It involves change of status and has

quasi-penal consequences. 148

The court then set aside the bankruptcy order and granted the postponement.

3.12 Security Deposits

Since 1 July 2010 the Commissioner has been able to require a taxpayer to give security for

the payment of an existing or a future tax related liability under division 255-D of Schedule 1

TAA. Section 255-100(1) enables the Commissioner to require a security deposit if he has

reason to believe that:

147 Ahern v DFC of T (QLD) (1987) 76 ALR 137, 146. 148 Ahern v DFC of T (QLD) (1987) 76 ALR 137, 148.

50 Taxpayer Rights

1. the taxpayer is establishing or carrying on an enterprise in Australia; and

2. the taxpayer intends to carry on that enterprise for a limited time only; or

3. the Commissioner reasonably believes that the requirement is otherwise

appropriate having regard to all relevant circumstances.

The Federal Court149 considered the ambit of this power and said:

It is to be observed that s 255-100(1)(a) refers both to the circumstance of a person or

entity “establishing” an enterprise and a person or entity “carrying on” an enterprise.

The juxtaposition of the words “establishing” and “carrying on” in s 255-100(1)(a)

shows that Parliament intended that the power to issue a notice is enlivened in

circumstances, even before the person or entity had commenced carrying on the

proposed enterprise, and was no further advanced in that endeavour than engaging in

the process of establishing the enterprise. Because the concept of “establishing” an

enterprise embraces preliminary activities that do not have the trading connotations

associated with “carrying on” a business, it is apparent that the power to issue a notice

may be enlivened well before the circumstance contended for by the applicant in this

case, namely, the sale of one or more of the subdivided lots.

The taxpayer in the above case also argued that the power to require security was outside the

powers envisage under the Constitution and was invalid (see section 9.4.1 below). The court

rejected this argument.

The Commissioner is required by section 255-105(2) to give notice of his requirement which,

amongst other things, is to include an explanation of why he requires the security, the amount

of the security, the means by which the security is to be provided, when it is to be provided

and how the decision may be reviewed. That review is an internal review. There is no

provision conferring jurisdiction on the AAT to consider the matter. The decision of the

Commissioner could be reviewed by the Federal Court on technical grounds under the

AD(JR)A.

3.13 Administrative Penalties under Division 284

Division 284 sets out the circumstances in which administrative penalties apply for various

breaches of the tax laws. It also sets out how to calculate the quantum of such penalties.

149 Keris Pty Ltd (Trustee) v Deputy Commissioner of Taxation [2015] FCA 1381 [27].

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A taxpayer is not liable to an administrative penalty for a statement that is false or misleading

in a material particular if the taxpayer or its agent took reasonable care150 in connection with

the making of the statement.151 A taxpayer is also not liable if a registered tax agent makes a

statement that is false or misleading in the circumstances set out in section 284-75 (6).

The Commissioner must make an assessment of the amount of an administrative penalty

under Division 284. An entity that is dissatisfied with such an assessment made about the

entity may object to it in the manner set out in Part IVC.152

The base penalty amount is reduced by 20% if: the Commissioner tells the taxpayer that an

examination is to be made of the taxpayer’s affairs relating to a taxation law for a relevant

period; and the taxpayer then voluntarily tells the Commissioner about the shortfall which

can reasonably be estimated to have saved the Commissioner a significant amount of time or

significant resources in the examination.153

The base penalty amount for a shortfall amount or scheme shortfall amount, or part of it, is

reduced by 80% if the shortfall amount is $1,000 or more; or reduced to nil if it is less than

$1,000 if the following criteria are met;

• where the taxpayer voluntarily tells the Commissioner, in the approved form, about

the shortfall amount before the day the Commissioner tells the taxpayer that an

examination is to be made of the taxpayer’s affairs; or

• where the taxpayer tells the Commissioner about the shortfall on or before the day

specified by the Commissioner in a public statement requesting entities to make a

voluntary disclosure by a particular day about a scheme or transaction that applies to

that taxpayer’s affairs.154

The Commissioner may remit all or a part of a penalty. If the Commissioner refuses, on

application, to remit all or part of a penalty; and the amount of penalty payable after the

150 Reasonable care was described in these terms by Finn J in R & D Holdings Pty Ltd v DFCT [2006] FCA 981 [182]:

I would add that encompassed in what constitutes reasonable care in this context is the need for the taxpayer, or its advisers who are reasonably relied upon, positively to advert to the applicability of the law in question to the taxpayer’s circumstances and actually to form a reasoned view on the matter.

151 Section 284-75(5). 152 Section 298-30. 153 Section 284-220. 154 Section 284-225. The terms ‘shortfall amount’ and or ‘scheme shortfall amount’ are defined by sections 284-80 and 284-150 respectively. Base penalty amount is defined in section 284-160.

52 Taxpayer Rights

refusal is more than 2 penalty units ($360.00); the taxpayer may object to the decision in the

manner set out in Part IVC.155

3.14 Powers of the Commissioner to Obtain Information and Evidence

Sections 353-10 and 353-15 only became effective 1 July 2015. Prior to this, sections 263

and 264 of the ITAA 36 contained much the same detail. Paragraph 2.26 of the Explanatory

Memorandum to the Treasury Legislation Amendment (Repeal Day) Bill 2014, explicitly

states that although the sections have been moved into the TAA and been re-phrased, there

has been no change in definition, policy or meaning of sections 263 and 264 of the ITAA 36.

Notwithstanding the foregoing the new provisions appear to go further than did the former

sections 263 and 264 ITAA 36. For example section 353-10 (1) (a-c) operate ‘for the

purpose of the administration or operation of a taxation law’ whereas section 264 (1)(b)

operated only in relation to matters ‘concerning a taxpayer’s or any other person’s income or

assessment.’ This may mean that in using the powers granted under section 353-10 as

opposed to the former section 264(1)(b) the ambit of the enquiry may be broader. Further

section 353-15 (1)(d) is a new provision that reads that the Commissioner ‘may inspect,

examine, count, measure, weigh, gauge, test or analyse any goods or other property and, to

that end, take samples.’

The Commissioner’s powers under sections 353-10 and 353-15 are sometimes seen as being

draconian, and so potentially oppressive. Reflecting this, there have been a significant

number of cases concerning the Commissioner’s use of these powers. Collectively those

cases have confirmed the wide reach of these sections.

Under section 353-15 the Commissioner or an individual authorised by the Commissioner

may enter and remain on any land, premises or place; and is entitled to full and free access to

any documents, goods or other property; and may inspect, examine, make copies of, or take

extracts from, any documents; and may inspect, examine, count, measure, weigh, gauge, test

or analyse any goods or other property and take samples.156

The occupier/taxpayer has the following rights:

155 Section 298-20. 156 Section 353-15.

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• should the Commissioner wish to take copies of documents for further consideration

or use, the taxpayer is entitled to retain the originals whilst the Commissioner is

limited to taking copies of those documents.

• the taxpayer is entitled to demand from the Commissioner’s representatives that they

produce proof of authority;

• the taxpayer is entitled to claim legal professional privilege (LPP)157 in relation to one

or more documents the Commissioner may wish to copy and/or examine. The

taxpayer must be given an opportunity of claiming this privilege;158

• a taxpayer has the right to challenge the issue of such a notice under the AD(JR)A or

Judiciary Act 1903 or Constitution.159 The Commissioner cannot make copies of all

documents in the taxpayer’s possession (documents include information stored

electronically) without first making some reasonable attempt to ensure the documents

copied are relevant to the enquiry by the ATO160 and

• a taxpayer is required to comply with a notice under section 353-(10) only to the

extent they are able to do so.

The common law privilege against self-incrimination is not available to the taxpayer.161

The right to claim LPP is important when the Commissioner seeks to exercise powers under

either section 353-10 or 353-15. Reference is made in this and other sections of this report to

Commissioner of Taxation v Donoghue.162 This is an important and far reaching decision.

What this judgment appears to stand for is that:

• if the Commissioner comes into possession of a taxpayer’s legally privileged

documents or documents subject to a right of confidentiality from a third party then

irrespective of the basis on which the third party obtained these documents the

Commissioner must have regard to these documents in determining a taxpayer’s

assessable income. The exception appears to be when the Commissioner obtains

157 LPP is only available where the ‘dominant purpose’ of a confidential communication from the legal advisor to a client involves either:

(a) legal advice about some matter, or (b) pending or anticipated litigation.

158 Commissioner of Taxation & Ors v Citibank Ltd (1989) 20 FCR 403; 89 ATC 4268; Daniels Corp International Pty Ltd v ACCC (2002) HCA 49. 159 For a discussion on injunctions see Cardile v Led Builders Pty Ltd [1999] HCA 18. 160 JMA Accounting Pty Ltd v Michael Carmody, Commissioner of Taxation [2004] FCAFC 274. 161 Stergis & Ors v Federal Commissioner of Taxation & Anor 89 ATC 4442. 162 Commissioner of Taxation v Donoghue [2015] FCAFC 183 [71-77].

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these documents directly from the taxpayer under the powers granted to him under

sections 353-10 and 353-15 TAA.

• if an ATO employee unlawfully comes into possession of such documents and hands

them to an investigating officer who is not a party to the wrongful conduct such

documents must be taken into account in determining a taxpayer’s assessable income.

• the provisions of section 166 ITAA 36 take primacy over claims (other than as set out

in the first bullet point above) to claims for privilege or confidentiality. Section 166

reads as follows:

From the returns, and from any other information in the Commissioner's

possession, or from any one or more of these sources, the Commissioner must

make an assessment of:

a. the amount of the taxable income (or that there is no taxable income) of

any taxpayer; and

b. the amount of the tax payable thereon (or that no tax is payable); and

c. the total of the taxpayer's tax offset refunds (or that the taxpayer can get no

such refunds).

Under section 353-10 the Commissioner may by notice in writing require a taxpayer to do all

or any of the following: to give the Commissioner any information that the Commissioner

requires for the purpose of the administration or operation of a taxation law; to attend and

give evidence before the Commissioner, or an individual authorised by the Commissioner, for

the purpose of the administration or operation of a taxation law; to produce to the

Commissioner any documents in their custody or under their control for the purpose of the

administration or operation of a taxation law.

Taxpayers should note the following in relation to section 353-10:

• for it to be valid the notice must specify the person(s) about whom information is

being sought;163

• the notice must specify a reasonable time and place when the evidence is to be given;

• the notice must specify with sufficient clarity the kind of information or evidence

which is being sought (oral, documents, under oath or affirmation etc.);164

163 ANZ and New Zealand Banking Group Ltd and Ors v DFC of T 2001 ATC 4140.

55 Taxpayer Rights

• the documents being sought by the Commissioner have to be in existence;165 and

• in Hua Wang Bank Berhad, the Federal Court upheld the validity of a section

264(1)(b) (predecessor to section 353-10) notice which required production of

documents where (it was argued that) production would breach the (criminal) laws of

another country. However, the Federal Court observed that an Australian court must

act cautiously where there is a possible intrusion on the sovereignty of a foreign

nation.166

A liquidator must comply with a s353-10 notice.167

The practical reach of sub sections 353-(10-15) is limited where the information being sought

is held partly or exclusively outside Australia. Section 264A ITAA 36 therefore

complements these sections by empowering the Commissioner to issue an ‘offshore

information notice’ to a person subject to Australian income tax. The information sought

under section 264A ITAA 36 can only relate to the assessment of the taxpayer unlike under

sections 353-(10-15) which can refer to persons other than the person on whom the notice is

served. It is not an offence to fail to provide information under section 264A ITAA 36

whereas a breach of either section 353-10 or 353-15 is an offence. A failure to provide the

documents requested under a section 264A ITAA 36 notice makes those documents, in some

circumstances, inadmissible in any future challenge to an assessment by the Commissioner

other than with the consent of the Commissioner.168 However section 264A (13) ITAA 36

provides:

In spite of anything in this section, the Commissioner must give consent under

subsection (10) in any case where a refusal would have the effect, for the purposes of

the Constitution, of making any tax or penalty incontestable. In MacCormick, the

majority stated that the legislature could not determine conclusively for itself its power

to enact legislation by putting beyond examination compliance with the constitutional

limits upon that power.169

164 Federal Commissioner of Taxation v Smorgon [1976] HCA 53; (1976) 134 CLR 475. 165 Perron Investments Pty Ltd & Ors v Deputy Federal Commissioner of Taxation (1989) 90 ALR 1. 166 Hua Wang Bank Berhad v Commissioner of Taxation [2013] FCAFC 28; Australia and New Zealand Banking Group Limited v Konza [2012] FCAFC 127. 167 For a case where the liquidator did not do so and was held personally liable for costs see FCT v Warner (No 2) [2015] FCA 1281. 168 Section 264A (10). 169 MacCormick v. Federal Commissioner of Taxation (1984) 158 CLR 622.

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The reason for the foregoing provision is that a law which imposes an incontestable tax is

constitutionally invalid and can be set aside by the High Court (see discussion on the

Constitution in section 9 below).

3.15 Secrecy Provisions

Information about the tax affairs of taxpayers including their tax file numbers is protected

information and cannot be disclosed unless specifically authorised under a statute. The

objects of Division 355 TAA are to: protect the confidentiality of taxpayers’ affairs by

imposing strict obligations on taxation officers (and others who acquire protected tax

information); to encourage taxpayers to provide correct information to the Commissioner;

and to facilitate efficient and effective government administration and law enforcement by

allowing disclosures of protected tax information for specific, appropriate purposes.170

Protected information is defined as information that was disclosed or obtained under or for

the purposes of a taxation law (other than the Tax Agent Services Act 2009 ) when the

information was disclosed or obtained; relates to the affairs of an entity; and identifies, or is

reasonably capable of being used to identify, the entity.171 Subdivision 355 B (section 355-

50 to 355-75) sets out the circumstances where a taxation officer may make such disclosures

and to whom. Possibly the most common is where this information is made available to a

court in proceedings where the Commissioner and taxpayer are parties.

Subdivision 355 C (sections 355-150 to 355-210) sets out the limited circumstances in which

a non-taxation officer may make such disclosures.

The disclosure of protected tax information that has been unlawfully acquired is prohibited

and may not be disclosed other than in very limited circumstances: Subdivision 355D. Again

from a taxpayer perspective the most important exception would appear to be where that

entity’s actions are required or permitted by a taxation law or reasonably necessary in order

to comply with an obligation imposed by a taxation law; or if the record was made for or the

information was disclosed to a taxation officer; and for a purpose connected with

administering a taxation law.

170 Section 355-10. 171 Section 355-40.

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3.16 Rulings

Public rulings apply to entities generally or a class of entities; in relation to a particular

scheme. Rulings must be published and stated to be a public ruling.172 Section 357-55

specifies the taxes to which a ruling may relate.

A public ruling binds the Commissioner from the time it is published, or from such earlier or

later time as is specified in the ruling. The Commissioner withdraws a public ruling, either

wholly or in part, by publishing notice of the withdrawal in the Gazette. The withdrawal is

effective from the time specified in the notice which cannot be retrospective. Where a public

ruling is withdrawn, that ruling continues to apply to schemes173 to which it applied that had

begun to be carried out before the withdrawal took place, but does not apply to schemes that

begin to be carried out after the withdrawal.174 A taxpayer relies on the ruling by acting (or

omitting to act) in accordance with the ruling.175

A taxpayer may rely on the ruling at any time unless prevented from doing so by a time limit

imposed by a taxation law. It is not necessary to do so at the first opportunity.176 Taxpayers

are not obliged to rely on a ruling and may apply their own interpretation of the law.177

However if the public ruling is applicable to their circumstances and they have not followed

it, the ATO may amend their assessment in accordance with the ATO view expressed in that

ruling. If the taxpayer disagrees it may challenge the assessment under Part IVC.

The Commissioner may, on application, make a written ruling on the way in which the

Commissioner considers a relevant provision applies or would apply to the taxpayer in

relation to a specified scheme. This is a private ruling.178

The essential difference between a private ruling and a public ruling is that a private ruling

deals with a specific course of action by a particular taxpayer, whereas a public ruling is

provided for the information of taxpayers generally, or a class of taxpayers.

172 Section 358-5. 173 A scheme is defined in section 995 Income Tax Assessment Act 1997 as meaning:

(a) any arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

174 Section 358-20. 175 Section 357-60(1). 176 Section 357-60(2). 177 Section 357-65. 178 Section 358-5.

58 Taxpayer Rights

Oral rulings constitute the third type of advice available to taxpayers that is legally binding

on the Commissioner. Oral rulings are legally binding in much the same way as are private

rulings. They are available only to individual taxpayers with simple tax affairs. Under section

360-5 to be eligible for an oral ruling:

• the advice sought cannot be in relation to a business matter

• the advice must not be complex, and

• the matter sought to be ruled upon must not be one that is already being, or has been,

considered by the Commissioner for that taxpayer.

All rulings are statutorily biding on the Commissioner and taxpayers can expect that if they

bring themselves within the ambit of a ruling they are entitled to be assessed on its terms.

The Commissioner has created a new form of document which either in whole or in part may

be described a public ruling. These documents are referred to as Law Companion

Guideline’s (LCGs).

LCGs are issued either in whole or in part as public rulings. Those portions of a LCG that are

a public ruling are binding on the Commissioner. A LCG is an expression of how the

Commissioner believes a newly enacted law will apply to taxpayers and his interpretation of

that law. The Commissioner makes at least one and possibly two contentious propositions in

his publication explaining how a LCG will operate.179

First he says that taxpayers may only rely on a LCG if they rely on it in good faith. Examples

are then given as to what the Commissioner means by ‘rely on a LCG in good faith’. This

would appear to conflict with the section 357-60 TAA which provides that a ruling binds the

Commissioner (whether or not you are aware of the ruling) if the ruling applies to you;

and you rely on the ruling by acting (or omitting to act) in accordance with the ruling.

Nothing is said in the section about acting in good faith. How a court will approach the

Commissioner’s qualification is unclear but prima facie unless the legislation is amended this

qualification may not be accepted.

179 ATO LCG 2015/D1 Law Companion Guidelines: purpose, nature and role in ATO’s public advice and guidance (updated 10 March 2016).

59 Taxpayer Rights

The Commissioner states that because a LCG is operative from the time an enactment comes

into force it is not informed by real world experiences. Then in a second possible contentious

statement the Commissioner continues:

Where a statement in a Guideline is later found to be incorrect, that part of the

Guideline may be withdrawn or amended. Where the change is less favourable to

taxpayers, this would usually be done with prospective effect only.180

The foregoing suggests (it is put no higher than this) that in certain circumstances a LCG may

be amended retrospectively. The Commissioner refers to paragraph 43 of TR 2006/10181 in

support of the above. This paragraph reads:

Where a public ruling does not specify the time at which it ceases to apply, the ruling

will apply until it is withdrawn.

There is nothing contentious about the statement in the ruling but the ruling does not deal

with the possibility of a retrospective amendment or withdrawal. The possibility of a

retrospective withdrawal or amendment of the part of a LCG which is a ruling appears to be

in conflict with section 358-20 (2) TAA which states that a public ruling may not be

withdrawn retrospectively irrespective of whether the change is or is not favourable to

taxpayers.

Practical Compliance Guidelines are not considered as the Commissioner accepts they are for

internal ATO use only.182

180 Ibid paragraph 40. 181 ATO, TR 2006/10: Public Rulings in support of the proposition that that a guideline may be withdrawn or amended (updated 6 October 2006). 182 PCG 2016/D1, Practical compliance guidelines: purpose, nature and role in AT)’s public advice and guidance (16 March 2016).

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4. Income Tax Assessment Act 1936 (ITAA 36)

Section 162 provides that:

A person must, if required by the Commissioner, whether before or after the end of

the year of income, give the Commissioner, within the time required and in the

approved form:

a. a return or a further or fuller return for a year of income or a specified period,

whether or not the person has given the Commissioner a return for the same

period; or

b. any information, statement or document about the person’s financial affairs

This power can be used separately from or in conjunction with sections 353-10 and 353-15

TAA.

Reference has previously been made to section 166 in section 3.14 above.

Section 170 and the regulations published under the ITAA 36 specify the time period when

and the circumstances under which the Commissioner may amend an assessment. An

amended assessment issued outside these periods can be successfully challenged under Part

IVC.

Section 202F refers to a range of decisions that may be taken on review to the AAT. Note

these are not challenges under Part IVC TAA.

Section 264A was considered in section 3.14 above.

61 Taxpayer Rights

5. Taxation (Interest on Overpayments and Early Payments) Act 1983

Under the above legislation taxpayers are entitled to interest on various amounts paid more

than 14 days prior to the day when the liability for which payment is made becomes due and

payable. These items include income tax, shortfall interest or general interest charges.183

Interest is not payable on PAYG or PAYG instalments. However where amounts deducted

such as PAYG (on which interest is not payable) are greater than the amount assessed,

interest is payable on the excess.184 If there is an overpayment as a result of a decision of the

Commissioner upon an objection; or a decision of the Tribunal in relation to an objection; or

a decision of a court in relation to an objection, interest is payable.185

Generally with individual taxpayers interest is for the period calculated from the beginning of

the 30th day after the day on which the person furnishes the return of income until the end of

the day on which the notice of assessment is issued.186

There are a range of other pre or overpayments on which interest is payable by the

Commissioner. These are specific provisions in the above Act that refer to overpayments

under the following statutes:

• Superannuation Contributions Tax (Assessment and Collection) Act 1997;

• Termination Payments Tax (Assessment and Collection) Act 1997; and

• Superannuation Contributions Tax (Members of Constitutionally Protected

Superannuation Funds) Assessment and Collection Act 1997

There are also specific provisions relating to running balance accounts.187

183 Section 8A and section 12A Taxation (Interest on Overpayments and Early Payments) Act 1983. 184 Ibid section 8E. 185 Ibid sections 9-11. 186 Ibid section 8F (1). 187 Ibid sections 12AA to 12 AF.

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6. Freedom of Information Act 1982 (FOI)

The purpose of the Freedom of Information Act 1982 is to give members of the public a

legally enforceable right of access to government documents that are not exempt from

disclosure: section 11. Requests for such information must be made in writing.188

Documents covered by the secrecy provisions of the TAA are exempt from disclosure.189

If information is supplied to a taxpayer that is in the possession of the Commissioner and the

taxpayer believes it is incomplete, incorrect, out of date or misleading; and that has been

used, is being used or is available for use by the agency or Minister for an administrative

purpose; the taxpayer may apply to the agency or Minister for: an amendment; or an

annotation; of the record kept of that information.190

If a request for information has been refused other than by the principal officer of the agency

or the responsible Minister, the entity may apply in writing for an internal review of that

decision.191

If there has been a refusal to grant access or on internal review the decision is affirmed a

party may apply in writing for an Information Commissioner Review (ICR).192 Such an

application may be withdrawn at any time.193 At any time during an ICR a review party may

request the Information Commissioner194 to hold a hearing.195 The onus is not on the review

applicant.196 A review party may appeal to the Federal Court on a question of law, from a

decision of the Information Commissioner.197 Time periods are specified for all these

processes but they may be extended on application.

A decision of the Information Commissioner may also be taken on review to the AAT.198

This is not a challenge under Part IVC. The AAT decision may be appealed to the Federal

188 Section 15 FOI. 189 Section 38 read with Schedule 3 FOI. Federal Commissioner of Taxation v. Swiss Aluminium Australia Limited & Ors 86 ATC 4200. Documents subject to legal professional privilege are also exempt: section 40 FOI. 190 Section 48 FOI. 191 Sections 54; 54B FOI. 192 Sections 54M; 54N FOI. 193 Section 54R FOI. 194 This official is appointed under the Australian Information Commissioner Act 2010. 195 Section 55B FOI. 196 Section 55D FOI. 197 Section 56 FOI. 198 Section 57A FOI; Chemical Trustee Limited and Ors and Commissioner of Taxation and Chief Executive Officer, AUSTRAC (Joined Party) [2013] AATA 623.

63 Taxpayer Rights

Court on a question of law. Taxpayers have reasonable prospects of success in these

matters.199

199 Murtagh v FC of T 84 ATC 4516; Re Walker & Ors and FC of T 95 ATC 2001; Re Saunders and FC of T, 88 ATC 2067.

64 Taxpayer Rights

7. Privacy Act 1988 (Privacy Act)

Schedule one to the Privacy Act sets out the Australian Privacy Principles. By the very nature

of the functions performed by the ATO some of these principles would not apply to the

Commissioner. The principles binding the Commissioner include: not collecting sensitive

information unless the collection of the information is reasonably necessary for, or directly

related to, one or more of the entity’s functions or activities (Principle 3 (4) (d). Principle 6 is

important and inter alia provides:

If an APP [Australian Privacy Principles] entity (the ATO is such an entity) holds

personal information about an individual that was collected for a particular purpose

(the primary purpose ), the entity must not use or disclose the information for another

purpose (the secondary purpose ) unless… the individual has consented to the use or

disclosure of the information; or …the use or disclosure of the information is required

or authorised by or under an Australian law or a court/tribunal order; or …the APP

entity reasonably believes that the use or disclosure of the information is reasonably

necessary for one or more enforcement related activities conducted by, or on behalf

of, an enforcement body.

Information about tax file numbers is also personal to a taxpayer and may not be made

publically available.200

If a taxpayer believes there has been a breach of the privacy principles he may complain to

the Information Commissioner or IGT.201 If the complaint is upheld the Information

Commissioner can make one or more of a range of orders.202 These orders include:

• the agency has engaged in conduct constituting an interference with the privacy of an

individual and must not repeat or continue such conduct; and

• make a declaration that the complainant is entitled to a specified amount by way of

compensation for any loss or damage suffered by reason of the act or practice the

subject of the complaint.

Such determinations are not binding203 but the Information Commissioner must state any

findings of fact relied upon in making such determination. However a complainant or the 200 Section 17 Privacy Act. See also Division 355 TAA. 201 Section 36 Privacy Act. The Inspector-General of Taxation Act 2003 is considered in section 8 below. 202 Section 52 Privacy Act.

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Information Commissioner may commence proceedings in the Federal Court or the Federal

Circuit Court of Australia to enforce a determination: section 55A(1). Section 55A(5)

provides that the court is to deal by way of a hearing de novo with the question whether the

person or entity in relation to which the determination applies has engaged in conduct that

constitutes an interference with the privacy of an individual. If the court is satisfied that an

interference with privacy has occurred, it may make such orders (including a declaration of

rights) as it thinks fit: section 55 A(2).

203 Section 52(1B) FOI.

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8. Inspector-General of Taxation Act 2003

Prior to the coming into effect of the Tax and Superannuation Laws Amendment (2014

Measures No 7) Act 2015 the powers of the IGT were limited to examining systemic

problems with systems established by the ATO to administer the tax laws. The IGT may now

in addition investigate individual taxpayer complaints. This is achieved through transferring

the investigative and complaint handling powers and functions of the Ombudsman to the IGT

so far as they relate to taxation law matters.

The legislation referred to above wholly transfers all of the investigative and complaint

handling powers and functions of the Ombudsman insofar as they relate to matters of

administration under a taxation law by a tax official from the Ombudsman to the IGT. The

amendments merge those powers and functions with the Inspector-General’s existing powers

and functions of conducting systemic reviews. This power is extensive and offers taxpayers a

non-litigious way of obtaining redress for wrongs committed against them. The right of

investigation of the IGT does not extend to challenges to assessments.

The IGT may not compel the ATO to act in a manner found to be necessary but the IGT

furnishes an annual report to Parliament where issues such as this would be brought to the

attention of Parliament and the general public. Failure on the part of the ATO to act on a

recommendation effectively results in the ATO being ‘named and shamed’ as all refusals are

reported to Parliament when the IGT makes a report to that body. This is a powerful

incentive for the ATO to acquiesce in an IGT recommendation.

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9. Other Legislation

9.1 General

The ATO is accountable to Parliament, which has special offices that oversee the ATO,204

and is subject to the scrutiny of the courts inter alia through the Judiciary Act 1903 (Cth), the

Constitution and the Administrative Decisions (Judicial Review) Act 1977 (Cth). No penalties

are imposed on the ATO if they issue an incorrect assessment other than a possible costs

order if successfully challenged in the Federal Court.

Before considering the various statutes that give taxpayers the right to seek judicial review it

is necessary to consider whether any act (particularly any statement made either orally or in

writing) on the part of the Commissioner which is not binding on him would entitle the

taxpayer to some relief. This is considered next.

9.2 Legitimate Expectations

If a taxpayer, in good faith, relies on: advice (other than a ruling) given to the taxpayer or its

tax agent; or a statement in a publication approved in writing by the Commissioner and the

statement or publication, is labelled as non-binding (if not stated to be a ruling and has no

other legislative authority it constitutes non-binding advice) the taxpayer is not liable to pay

the general interest or the shortfall interest charges.205 This does not prevent the

Commissioner from issuing an assessment that reflects what he considers to be a correct

application of the tax laws which may be inconsistent with such non-binding advice. The

status of non-binding advice was authoritatively stated by the full bench of the Federal Court

in Macquarie Bank.206 In this case the taxpayer sought declaratory relief (see section 11.2

below) that the Commissioner had not acted in terms of a practice statement that had been

issued by him. The court unanimously held:

The power of the general administration of tax legislation given to the Commissioner,

by provisions like s 8 of the 1936 Act, s 356-5 of schedule 1 of the 1953 Act and s 44

of the Financial Management and Accountability Act 1997 (Cth) (‘1997 Act’), does

not permit the Commissioner to dispense with the operation of the law. The power of

general administration in such provisions is not a discretion to modify, or which 204 Examples include the Inspector-General of Taxation and the Australian National Audit Office. 205 Section 361-5 TAA. 206 Macquarie Bank Limited v Commissioner of Taxation [2013] FCAFC 119. See also Stewart v The Deputy Commissioner of Taxation [2010] FCA 402 [9, 10].

http://www.austlii.edu.au/au/legis/cth/consol_act/fmaaa1997321/s44.html

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modifies, the liability to tax imposed by the statute…the practice statement could not

fetter the Commissioner’s duty of assessment or re-assessment where the law

operated to impose liability nor could it fetter the lawful process of making an

assessment to that end…any failure by the Commissioner to comply with his view in

the practice statement will not alter the taxpayer’s liability upon an assessment or the

Commissioner’s duty to assess upon the correct view of the law…Whatever the

sanction may be for the Commissioner not complying with the practice statement, it is

not to relieve the taxpayer of the liability correctly imposed by the Act…(Emphasis

added).

The court made it clear that non-binding documents cannot impede the obligations of the

Commissioner to assess in terms of the tax laws. They are published under the

Commissioner’s powers of general administration of the tax laws under section 8 ITAA 36 or

equivalent legislation and have no binding legal effect. The Commissioner is obliged to

assess in terms of the tax laws and non-binding advice cannot impact on that obligation.

The issue that arises in circumstances such as this is whether taxpayers have any rights

against the Commissioner when he acts contrary to published non-binding advice.

It is in this context that the High Court in Haoucher considered the concept of ‘legitimate

expectations.’ As will be seen below this phrase no longer finds favour with the High Court.

It prefers to speak of a person’s right to be treated procedurally fairly when dealing with

regulators such as the ATO. This report will use both phrases interchangeably. Deane J

noted that ‘the word “legitimate” is prone to carry with it a suggestion of entitlement to the

substance of the expectation whereas the true entitlement is to the observance of procedural

fairness before the substance of the expectation is denied.’207 McHugh J noted that:

A legitimate expectation that a person will obtain or continue to enjoy a benefit or

privilege must be distinguished, however, from a mere hope that he or she will obtain

or continue to enjoy a benefit or privilege. A hope that a statutory power will be

exercised so as to confer a benefit or privilege does not give rise to a legitimate

expectation sufficient to attract the rules of natural justice: South Australia v. O'Shea

[1987] HCA 39; (1987) 163 CLR 378, at p 402. To attract the operation of the rules of

procedural fairness, there must be some undertaking or course of conduct acquiesced

207 Haoucher v Minister for Immigration & Ethnic Affairs [1990] HCA 22; (1990) 169 CLR 648 [2].

http://www.austlii.edu.au/au/cases/cth/HCA/1987/39.html

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in by the decision-maker or something about the nature of the benefit or privilege

which suggests that, in the absence of some special or unusual circumstance, the

person concerned will obtain or continue to enjoy a benefit or privilege (Emphasis

added).208

Accordingly the requirements of procedural fairness may not require that ‘each person

affected be accorded an effective opportunity of being personally heard before a decision is

made but nonetheless requires that the decision-maker be, and appear to be, personally

unbiased.’209 This right to procedural fairness does not give rise to substantive rights. 210

The High Court has recently had an opportunity of revisiting the concept of ‘legitimate

expectations’ in WZARH.211 Kiefel, Bell and Keane JJ stated:

The use of the concept of “legitimate expectation” as the criterion of an entitlement to

procedural fairness in administrative law has been described in this Court as “apt to

mislead” “unsatisfactory” and “superfluous and confusing”…

More recently, in Plaintiff S10/2011 v Minister for Immigration and Citizenship,

Gummow, Hayne, Crennan and Bell JJ referred to the discussion of the concept by

four members of the Court in Lam, and said that:

“the phrase ‘legitimate expectation’ when used in the field of public law either

adds nothing or poses more questions than it answers and thus is an

unfortunate expression which should be disregarded.”…

The “legitimate expectation” of a person affected by an administrative decision does

not provide a basis for determining whether procedural fairness should be accorded

to that person or for determining the content of such procedural fairness. It is

sufficient to say that, in the absence of a clear, contrary legislative intention,

administrative decision-makers must accord procedural fairness to those affected by

their decisions. Recourse to the notion of legitimate expectation is both unnecessary

and unhelpful. Indeed, reference to the concept of legitimate expectation may well

distract from the real question; namely, what is required in order to ensure that the

208 Haoucher v Minister for Immigration & Ethnic Affairs [1990] HCA 22; (1990) 169 CLR 648 [16]. 209 Haoucher v Minister for Immigration & Ethnic Affairs [1990] HCA 22; (1990) 169 CLR 648 [2]. 210 Re Minister for Immigration and Multicultural Affairs; Ex parte Lam [2003] HCA 6; (2003) 214 CLR 1 [148]. 211 Minister for Immigration and Border Protection v WZARH [2015] HCA 40 [28-30].


70 Taxpayer Rights

decision is made fairly in the circumstances having regard to the legal framework

within which the decision is to be made (Emphasis added).

Gaegler and Gordon JJ in WZARH stated:

The concern of procedural fairness, which here operates as a condition of the exercise

of a statutory power, is with procedures rather than with outcomes. It follows that a

failure on the part of an assessor or reviewer to give the opportunity to be heard which

a reasonable assessor or reviewer ought fairly to give in the totality of the

circumstances constitutes, without more, a denial of procedural fairness in breach of

the implied condition which governs the exercise of the Minister's statutory powers of

consideration. 212

If the Commissioner changes his view contained in non-binding advice he should give notice

of this to all taxpayers. It seems he need not communicate with each taxpayer separately.

Even if there were a taxpayer directly impacted by this change the general notification should

suffice. What constitutes procedural fairness depends on all the circumstances of the case

including the statutory basis for the administrative decision. This was highlighted in the

Federal Court in Macquarie Bank sitting as a court of first instance (accepted by the full

bench on appeal) where the following was said:

There is some analogy here with the instructions (termed “Guidelines”) which

successive Ministers for Immigration have issued to their officers, as to classes of

cases that are to be brought to the Minister’s attention for the possible exercise of one

of the non-compellable ministerial discretions under the Migration Act 1958 (Cth).

This Court has repeatedly refused to entertain attempts to enforce those instructions

by seeking orders against the officers based on alleged non-compliance with

them…The matter must be considered in the appropriate statutory context. That

context relevantly includes the comprehensive review and appeal mechanisms in Part

IVC. The present case does not have anything comparable to the special features of

Plaintiff M61 just mentioned. In particular, a decision of the kind contemplated in PS

LA 2011/27 may affect whether the ATO takes “compliance action” but does not

212 Ibid [55-57].

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71 Taxpayer Rights

have a necessary or direct relationship with any particular exercise of statutory power

(Emphasis added).213

The fact that there are contained in Part IVC TAA challenge rights to assessments suggests

that the possibility of judicial review due to a lack of procedural fairness is unlikely to be

successful where an assessment or a step leading to an assessment is in issue. Further support

is found in the judgment of Justice Robertson who held that:

There is specific authority for the proposition that a challenge under s 39B of the

Judiciary Act to an assessment is not maintainable on the ground of mere denial of

procedural fairness (references omitted).214

In Chemical Trustee, the Court noted that ‘the effect of sections 175 and 177 is to preclude

judicial review of assessment decisions in proceedings under s 75(v) of the Constitution or s

39B of the Judiciary Act 1903 (Cth) for error of law, failure to take into account mandatory

relevant considerations and breaches of procedural fairness.’215

The position may be different where a challenge under Part IVC is not available. In this case,

if a court finds, having reviewed all the circumstances, that there was a lack of procedural

fairness in the manner in which the Commissioner has acted towards a taxpayer the

Commissioner’s decision could be set aside with an order that he reconsider the matter. This

appears from the judgment of Justice Perram in Stewart where the following was said:

The only remedy available for a breach of the rules of procedural fairness would be an

order setting aside the Commissioner’s decision to depart from the concession with a

concomitant order to reconsider his decision to do so: Re Minister for Immigration

and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1 at 21 [66]-

[67] per McHugh and Gummow JJ, 48 [148] per Callinan J; Rush v Commissioner of

Police [2006] FCA 12; (2006) 150 FCR 165 at 186-187 [82] per Finn J.216

The relief available to a taxpayer not because there was some ‘expectation’ on the part of the

taxpayer that the Commissioner would act in a particular way but rather one or more of the

grounds for judicial review had been made out.

213 Macquarie Bank Limited v Commissioner of Taxation [2013] FCA 887 [85-86]. 214 Pratten v Commissioner of Taxation [2015] FCA 1357 [23]. 215 Deputy Commissioner of Taxation v Chemical Trustee Ltd [2010] FCA 1297 [49]. 216 Stewart v The Deputy Commissioner of Taxation [2011] FCA 336 [13].

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The decision of the Court of Sessions in Scotland in Al Fayed raises an important issue when

considering legitimate expectations of taxpayers.217 In this case the revenue authorities in

Scotland had entered into a forward tax agreement with the petitioners in 1997 under which

the petitioners agreed to pay specified annual sums in respect of specified future years of

assessment. The Revenue agreed to accept those sums in lieu of any income tax and capital

gains tax to which the petitioners might otherwise have been liable. This agreement was ultra

vires the powers of the Revenue and was cancelled by the Revenue. The taxpayers sought to

contend that they had a legitimate expectation that the Revenue would abide by the

agreement. The court unanimously said:

We have already reached the conclusion that, as the 1997 Agreement was ultra vires,

the respondents did not have any discretion to continue to abide by the Agreement

once they knew that it was ultra vires. A decision taken at that stage to continue to be

bound by the Agreement for the remainder of its contractual duration would, in our

opinion, have been outwith the powers of the respondents. However, under our

domestic law a legitimate expectation can only arise on the basis of a lawful promise,

representation or practice. There can be no legitimate expectation that a public body

will continue to implement an agreement when it has no power to do so. In our

opinion, the petitioners could not have had a legitimate expectation that the

respondents would have adopted a course of action which was outwith their powers,

and continued to maintain a contract which was unlawful. While the petitioners may

well have had an expectation, it was not, in the particular circumstances of this case

and according to our common law, a legitimate expectation. Accordingly, we

consider that the petitioners’ case based on a breach of legitimate expectation must

fail. We should add that, if the petitioners did have a legitimate expectation that the

respondents would abide by the terms of the 1997 Agreement until its stipulated

expiry date, we are satisfied, for the reasons which we have already set out, that the

respondents’ decision to bring the Agreement to an end in June 2000 was not unfair

and was not an abuse of power (Emphasis added).218

217 Al Fayed and others v Advocate General for Scotland (representing the Inland Revenue Commissioners) [2004] STC 1703. 218 Ibid [119].

73 Taxpayer Rights

If the act of the Commissioner in respect of which it is said the legitimate expectation arises

is outside his powers no legitimate expectation can arise. Even though Al Fayed is a Scottish

case it is submitted an Australian court would come to a similar conclusion.

Having regard to the provisions of the tax laws and the inferences of legislative intent that

can be drawn from these laws219 coupled with the judgment in Macquarie Bank it would

appear that other than for rulings or other legislative determinations made by the

Commissioner, publications by the ATO of non-binding advice have no practical utility when

considering proceedings against the Commissioner when the act complained of is a step in

making an assessment or the issue of an assessment itself. Even if a legitimate expectation is

found to be present it seems the Commissioner can discharge his obligations in one of a

number of ways. These are: by publicising the fact that he will not act in terms of the non-

binding advice; or by ensuring there are no perceptions of bias on his part; or giving the

taxpayer an opportunity of putting its case as to why the Commissioner should abide by his

previous statement and giving such submissions proper consideration.

There are two statutes that may possibly impact on the foregoing. They are the Public

Governance, Performance and Accountability Act 2013 (PGPA) and the Public Service Act

1999 (PSA). In his 2014-15 Annual Report the Commissioner acknowledged he is bound by

the PGPA and all government employees are governed by the PSA. In all the cases referred

to in this section the PGPA was not cited as it only became operative on 1 July 2013. Section

5 of the PGPA states its objects are inter alia:

(a) to establish a coherent system of governance and accountability across

Commonwealth entities…

(c) to require the Commonwealth and Commonwealth entities:

(i) to meet high standards of governance, performance and

accountability; and

(ii) to provide meaningful information to the Parliament and the public; ... (Emphasis

added).

219 Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation [1963] HCA 41; (1963) 113 CLR 475 per Kitto J [13].

74 Taxpayer Rights

In terms of the PGPA officials of a Government entity must perform their tasks in good faith

and with reasonable care and diligence: section 25. An official of a Commonwealth entity

must exercise his or her powers, perform his or her functions and discharge his or her duties

honestly, in good faith and for a proper purpose: section 26. The PSA (section 13 (1-2))

provides all government employees must behave honestly and with integrity, act with care

and diligence and not provide false or misleading information in response to a request for

information that is made for official purposes. Section 13(4) of the PSA provides that ‘An

APS employee, when acting in connection with APS employment, must comply with all

applicable Australian laws.’ The full bench of the Federal Court in Denlay had occasion to

deal with this latter subsection of the PSA and stated with reference to the decision in

Futuris220 that:221

Their (the majority judgment in Futuris) views are concerned with making the point

that an assessment which is the result of bad faith towards a taxpayer is not an

assessment worthy of that description in the ITAA 1936. It may be accepted that such

a purported assessment would be contrary to s 13(4) of the Public Service Act. But the

reasons of the majority of the High Court in Futuris do not support the notion that an

assessment, made in good faith on the basis of information believed to be accurate,

may be vitiated by reason of a breach of s 13(4) of the Public Service Act in the

course of obtaining that information.

The Federal Court in Leaver222 amplified the foregoing by stating:

In all respects what the pleading lacks is the fundamental element required to

establish a pleading of bad faith, namely, the material facts said to constitute the

consciousness or awareness or knowledge of wrongdoing. Neither bad faith nor

conscious wrongdoing is established by knowledge, awareness or consciousness of

acts, facts or circumstances which the person concerned does not believe to be

wrongful. Facts, acts or circumstances may be wrongful and that wrongfulness may

result in such other remedies as may be available in respect of that wrongdoing, but

wrongdoing does not establish bad faith of the kind contemplated in Futuris or

Denlay.

220 Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32. 221 Denlay v Commissioner of Taxation [2011] FCAFC 63 [80]. 222 Deputy Commissioner of Taxation v Leaver [2015] FCA 1454 [9].

http://www.austlii.edu.au/au/legis/cth/consol_act/psa1999152/s7.html#aps_employee

http://www.austlii.edu.au/au/legis/cth/consol_act/psa1999152/s7.html#aps_employment

http://www.austlii.edu.au/au/legis/cth/consol_act/psa1999152/s13.html

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75 Taxpayer Rights

It may be arguable that in issuing these non-binding documents the Commissioner is acting

under the specific legislative provisions noted above and that he creates a legitimate

expectation of future conduct in the mind of a taxpayer. It seems the PGPA and PSA do not

afford taxpayer’s any rights such as to convert non-binding advice into substantive rights on

the part of taxpayers. As was noted in Broadbeach ‘The notion that the Commissioner can,

absent specific statutory authority, ‘qualify’ the operation of a federal statute is a hopeless

contention, bereft of support and having no place in proceedings responsibly drawn.’223

Notwithstanding the views expressed above there have been dicta that suggest that non-

binding publications by the Commissioner may give rise to a legitimate expectation. An

example is One.Tel224 where Burchett J had this to say:

It seems to me that the formality and detail with which the Guidelines are framed and

the nature of their subject matter point strongly in favour of the view that they give

rise to a legitimate expectation that the Commissioner will conduct himself in the

manner he has so carefully set out…The more difficult question is whether there is a

legitimate expectation, of the kind held to arise in Haoucher,…But here, too, I think

the formality and particularity of the Guidelines, together with the Commissioner’s

own care to set out in them the justification supporting each aspect of them, require

the conclusion that they do give rise to such a legitimate expectation…I do not think

that natural justice makes the same demand here as it did in Haoucher…a person may

be entitled to less than full particulars of the facts and views which may be considered

sufficient to deny his expectation (Emphasis added).

In obiter dicta Goldberg J in Deloitte Touche225 said:

A key issue in the proceeding is the relevance of the guidelines in the manual and

whether they were complied with by the respondent. It is important to understand the

significance of the guidelines for they do not have the status of a legislative enactment

but are rather the creation of the Commissioner and the Australian Taxation Office. It

is submitted by the respondent that they do not constitute a source of rights. In my

opinion, the manner in which they have been promulgated and their contents make it

clear that they are, at the least, a relevant consideration to which the respondent and

223 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41. 224 One.Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270 [42]. 225 Deloitte Touche Tohmatsu & Ors v DFCT 98 ATC 5192, 5207.

76 Taxpayer Rights

officers of the Australian Taxation Office must have regard and at the most (without

deciding the issue) they are matters which create a legitimate expectation in taxpayers

and their professional accounting advisors that they will be complied with according

to their terms.

If the views expressed in One.Tel and Deloitte Touche are correct (particularly where an

assessment is not in issue) the publication of non-binding documents possibly does give rise

to a legitimate expectation on the part of taxpayers. It seems, however, that the obligation to

act procedurally fairly may not be difficult to meet. As noted previously it seems that all that

is required to ensure procedural fairness is that the Commissioner must ensure there are no

perceptions of bias or give notice that he will depart from the content of the document in

issue or give the taxpayer impacted an opportunity of putting its case and giving that case

proper consideration. The judgment in May could possibly limit this right. The court said

There may well be good reasons of public policy why, as between public officials and

persons directly affected by the exercise of a power, such persons should as a rule be

notified of decisions exercising that power. But if such an obligation is to be imposed,

notwithstanding the obvious practical difficulties it could entail, it is one for

parliament, not for the courts, to prescribe. It has not done so to date. Rather our

system of judicial review contemplates the very contingency that a person aggrieved

by a decision may not receive official notice of it and may only ascertain that it has

been made at some later date: see e.g. ADJR Act, s 11(4) and (5); and see Worthley v

Australian Securities Commission (1993) 11 ACLC 610; (1993) 42 FCR 578.

Fourthly, given the circumscribed scope of the requirements of procedural fairness,

we consider that no proper basis exists for calling into question the observations made

by judges of this Court in Sixth Ravini Pty Ltd v FC of T, in Allen, Allen & Hemsley v

DFC of T, and in Minosea Pty Ltd v ASC, above, that the obligation of procedural

fairness does not apply to a decision to issue a notice under s 264(1) or equivalent

statutory provisions.226

It seems if a legitimate expectation does arise then very little may be required of the

Commissioner to ensure taxpayers are treated procedurally fairly.

226 May v DFCT 99 ATC 4587 [36-37].

77 Taxpayer Rights

In any event the Commissioner currently puts a caveat at the beginning of some non-binding

documents that they are for example only for the use of ATO staff.

There are two types of non-binding documents that require special mention. These documents

afford taxpayers some limited form of LPP. They are what are known as the ‘accountant’s

concession’ and the ‘corporate board concession.’ These documents and the rights afforded

to taxpayers under them are not steps in issuing an assessment (see for example section

9.3.3.1 below).

9.2.1 Accountants’ Concession227

This is an ‘administrative’ concession granted by the Commissioner, which applies to

taxpayer documents prepared by external professional accounting advisors who are

independent of the taxpayer. It takes the form of a qualified LPP. Although the ATO has

access powers to request documents, there are a certain class of documents which the

Commissioner recognises should not be accessed unless there are exceptional circumstances.

This is intended to give taxpayers the confidence to communicate frankly with their

accounting advisors in discussing their tax affairs.

The accountants’ concession classifies taxpayer documents into three categories:

- source

- restricted source, and

- non-source documents.

Source documents are not covered by the accountants’ concession. They include documents

recording details about transactions and arrangements. Examples include ledgers, balance

sheets and tax working papers.

According to the ATO, restricted source and non-source documents will only be accessed by

the Tax Office in exceptional circumstances. These categories of documents include

documents which discuss sensitive issues associated with source documents or documents

227 This can be accessed at <https://www.ato.gov.au/general/gen/guidelines-to-accessing-professional-accounting-advisors--papers/# >.

https://www.ato.gov.au/general/gen/guidelines-to-accessing-professional-accounting-advisors--papers/

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which provide opinions on an item contained in the client’s tax return, or advice provided,

but not acted upon by the taxpayer.

Exceptional circumstances include:

• taxpayer with a history of serious non-compliance or a history of taking aggressive

tax positions;

• the anti-avoidance provision may apply;

• reasonable suspicion of tax evasion, fraud, offences under the TAA or any other

illegal activity; and

• likelihood of source documents being destroyed or lost.

Justice Perram considered the accountant’s concession, in one of the series of Stewart228

cases and stated:

The concession is not, and could not be, a rule of law. It is plain that no other party

apart from the Commissioner is affected by it. In particular, it was not, and it could

not have been, suggested that the material seized by the ACC under warrant was

immune from production under that warrant for the concession in no way bound the

ACC (Emphasis added).

And

Whilst it is true the concession has been held to engender a legitimate expectation

that it will be applied so that unnotified departure from it will involve a breach of the

rules of procedural fairness (One.Tel Ltd v Commissioner of Taxation [2000] FCA

270; (2000) 101 FCR 548 at 567-568 [42] per Burchett J) in no universe of discourse

does it operate so as to prevent the Commissioner from discharging his public

obligations under the Act which may well include using the documents seized from

Mr Stewart . In effect, the applicants’ argument must rise as high as an assertion that

the concession could operate to qualify the operation of the Act itself. Indeed, the

applicants do allege that s 8 of the Act, which vests administration of the Act in the

Commissioner, “has been qualified by” the concession (see paragraph 3 of the

statement of claim).

228 Stewart v The Deputy Commissioner of Taxation [2010] FCA 402 [5-6] and [9-10].



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This argument is contrary to axiomatic principles of Australian law. Under that

system, Parliament makes the law and the Executive, of which the Commissioner is a

part, administers it. The notion that the Commissioner can, absent specific statutory

authority, “qualify” the operation of a federal statute is a hopeless contention, bereft

of support and having no place in proceedings responsibly drawn (Emphasis added).

The accountant’s concession does not apply if the Commissioner obtains documents whether

they are restricted or non-source documents from a third party.229

9.2.2 Corporate Board Concession

The ‘corporate advice on tax compliance risk’ (‘corporate board concession’) is another

administrative concession the Commissioner has granted taxpayers. Documents may be

protected from access by the ATO if the information within the document is created:

• by advisors (in-house or external);

• for the sole purpose of providing advice or opinion to a corporate board relating to a

major transaction, arrangement, corporate system or process; or

• in relation to the likelihood and impact of tax compliance risk, likely view held by the

Tax Office or to manage the tax compliance risk.230

Even if the taxpayer claims the corporate board concession, the ATO can lift the concession

in similar exceptional circumstances as apply to the accountant’s concession above.

The report now turns to the AD(JR)A.

9.3 Administrative Decisions (Judicial Review) Act 1977 (AD(JR)A)

The broad policy intent of the AD(JR)A is to provide a ‘simple’ path for judicial review of

disputes over Commonwealth administrative decisions. This includes taxpayers’ disputes

with the Tax Office.

Where an application has been made for a judicial review under the AD(JR)A, section 15(1)

states that this:

229 Stewart v The Deputy Commissioner of Taxation [2011] FCA 336. 230 PS LA 2004/14 ATO access to advice for a corporate board on tax compliance risk.

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does not affect the operation of the decision or prevent the taking of action to

implement the decision but:

a. the Court or a Judge may, by order, on such conditions (if any) as it or he or she

thinks fit, suspend the operation of the decision; and

b. the Court or a Judge may order, on such conditions (if any) as it or he or she

thinks fit, a stay of all or any proceedings under the decision.

There are a number of criteria that must be met before a claim under the AD(JR)A will be

successful. These are considered below.

9.3.1 The Applicant must be a ‘Person Aggrieved’

Section 3 (4) AD(JR)A defines what is meant by an ‘aggrieved person’. Essentially it is a

person whose interests are adversely affected by the decision; or a person whose interests

would be adversely affected if a decision were, or were not, made in accordance with the

report or recommendation.

This threshold requirement is a low one. Generally, the courts have taken a wide

interpretation of the term ‘person aggrieved.’

9.3.2 The Application must be made in time

The taxpayer generally has 28 days after the day that the document containing the decision is

provided, to apply for judicial review in accordance with section 11 AD(JR)A but the court

has discretion to extend the time period.

9.3.3 There must be a ‘Decision’ ‘Conduct’ or ‘Failure’ Within Scope of the AD(JR)A

To fall within the ambit of the AD(JR)A a decision must be of an administrative character

and made under an enactment: section 3.

The ‘two bars’ of this requirement entail the interpretation by the Courts of what constitutes,

first, ‘a decision of an administrative character’ and, second, ‘a decision made under an

enactment’. Each is considered below.

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9.3.3.1 A Decision of an Administrative Character

Since Australian Broadcasting 231 it is clear that the decision must be substantive rather than

only procedural in character. It cannot involve just a step in the course of reasoning toward an

ultimate decision.

ATO decisions that have been found to be of an administrative character include decisions to:

• exercise section 353-15 TAA access powers;

• issue a section 353-10 TAA notice;

• institute court recovery action for unpaid tax; and

• prosecute persons under various offence provisions.

Tax Office determinations made under Part IVA ITAA 36 (the general anti-avoidance rule)

and interim Tax Office audit reports have been found to form part of the process of making

an assessment, and so are not reviewable under the AD(JR)A.232 Expressions of opinion are

not amenable to review under the AD(JR)A.233

9.3.3.2 A Decision Made under an Enactment

The term enactment mostly covers Commonwealth Acts and Ordinances, by-laws and

instruments made thereunder.

A decision will only have been made under an enactment if it has been made under the

authority of a particular provision in the relevant legislation. In considering whether or not

this has been the case, the Courts look to the immediate or proximate source of power rather

than to an ultimate source residing in the Federal legislation.

Sections 8 of the ITAA 36 (and similar provisions in other tax laws) are problematic. It

provides that the Commissioner shall have the general administration of the Act. The view

today is that acting under these provisions is not a decision under an enactment.234

231 Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 232 Meredith v FC of T & Ors 2002 ATC 4730. 233 Pegasus Leasing Ltd v FCT 91 ATC 4972. 234 Knuckey v FC of T 97 ATC 4911; PFTF Stock Pty Ltd v Deputy Commissioner of Taxation [2010] FCA 557.

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9.3.4 The Decision Must Not Be ‘Excluded’ from the Scope of the AD(JR)A

Certain decisions which otherwise would be reviewable are expressly excluded from review.

These exclusions are contained in Schedule 1 to the AD(JR)A. Those concerning tax include:

e. Decisions making or forming part of the process of making, or leading up to the

making of assessments or calculations of tax, charge or duty, or decisions

disallowing objections to assessments or calculations of tax, charge or duty, or

decisions amending or refusing to amend, assessments or calculations of tax, charge

or duty, under any of the Income Tax Assessment Act 1997, ITAA 36 and TAA, but

only so far as the decisions are made under Part 2-35, 3-10 or 4-1 in Schedule 1 to

that Act; and

ga. decisions under section 14ZY TAA disallowing objections to assessments or

calculations of tax, charge or duty; and

gaa. decisions of the Commissioner of Taxation under Subdivision 268-B or

section 268-35 TAA.

To overcome this hurdle the taxpayer must prove the decision is ‘so far removed from the

assessment process that it does not, in the relevant sense, lead up to the making of an

assessment.’235

9.3.5 The Applicant Must Establish One of the ‘Grounds for Relief’ Set Out in the AD(JR)A

The grounds of review outlined in sections 5 and 6 of the AD(JR)A are primarily the same.

These include:

(a) a breach of the rules of natural justice;

(b) procedures that were required by law … were not observed;

(c) [the decision-maker] … did not have the jurisdiction to make the decision

(d) the decision was not authorized by the enactment in pursuance of which it was

purported to be made;

235 Intervest Corporation Pty Ltd v Commissioner of Taxation (1984) 3 FCR 591.

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(e) [the decision-making involved] … an improper exercise of the power conferred

by the enactment in pursuance of which it was purported to be made;

(Subsection 5(2) identifies the following situations where there will be such an

improper exercise of the power:

• taking an irrelevant consideration into account in the exercise of a power

• failing to take a relevant consideration into account in the exercise of a

power;

• an exercise of a power for a purpose other than a purpose for which the

power is conferred;

• an exercise of a discretionary power in bad faith;

• an exercise of a personal discretionary power at the direction or behest of

another person;

• an exercise of a discretionary power in accordance with a rule or policy

without regard to the merits of the particular case;

• an exercise of a power that is so unreasonable that no reasonable person

could have so exercised the power (Commonly referred to as the

Wednesbury principle-see section 9.6 below);

• an exercise of a power in such a way that the result of the exercise of the

power is uncertain, and

• any other exercise of a power in a way that constitutes abuse of the power.)

(f) the decision involved an error of law, whether or not the error appears on the

record of the decision;

(g) the decision was induced or affected by fraud;

(h) there was no evidence or other material to justify the making of the decision;

(j) the decision was otherwise contrary to law.

Section 7 AD(JR)A refers to a situation where the decision maker has a duty to make a

decision, but has failed to make the decision. If there is no prescribed period in which the

decision maker has to make the decision, then there is a ground of relief for unreasonable

delay in making the decision. If there is a prescribed period in which the decision maker has

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to make the decision, and it has expired, then there is a ground of relief for failing to make a

decision within the prescribed period.

9.3.6 The Exercise of the Court’s Discretion to Grant Relief

If the applicant has satisfied the previous five requirements the courts have considerable

discretion as to whether or not to grant the relief. If the taxpayer has some other form of relief

available the court would probably exercise its discretion against the taxpayer except in

exceptional circumstances.236As to the form of relief available to a taxpayer the High Court

in Park Oh Ho237 noted that:

In that regard, it is relevant to mention that both declaratory and injunctive orders, as

distinct from an order for damages, can readily be seen as appropriate remedies of

judicial “review” of administrative decisions and actions.

The foregoing would suggest damages are not appropriate orders when administrative actions

are reviewed.

9.3.7 The Right to Reasons for a Decision

Section 13 AD(JR)A is a crucial provision to enable applicants (taxpayers) to seek reasons

from a decision maker for any decision. These reasons can be fundamental in determining

whether to proceed for example under the AD(JR)A or Part IVC or to take no further action.

Specifically, subsection 13(1) provides:

Where a person makes a decision to which this section applies, any person who is

entitled to make an application to the Federal Court or the Federal Circuit Court under

section 5 in relation to the decision may … request … a statement in writing setting out

the findings on material questions of fact, referring to the evidence or other material on

which those findings were based and giving the reasons for the decision.

Key points to observe from subsection 13(1) are the following:

• the person seeking the reasons must be ‘a person who is aggrieved by a decision.’

236 See for example Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32. 237 Park Oh Ho v Minister for Immigration & Ethnic Affairs [1989] HCA 54; (1989) 167 CLR 637.

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• a person can request a statement of reasons separate and independently from an

application for judicial review. But the person must be ‘entitled’ as per the legislative

steps outlined above.

For section 13 to apply a “decision” has to have been made.

9.3.7.1 Requests

The taxpayer must request a statement of reasons. The form and content of the request is not

prescribed other than that it must be in writing and it seems the request should be made

within 28 days of the decision.238 Although there is no legislative time limit to request a

statement of reasons, section 13(5)(a) allows the decision maker to refuse to provide a

statement of reasons if the request is not made within 28 days.

Under section 13(5)(b), where the decision was not provided in writing, the request for a

statement of reasons has to be made within a ‘reasonable time after the decision was made.’

Subsection 13(6) specifies that the Courts have to decide what constitutes ‘reasonable’ when

the parties cannot agree on this matter.

If the decision maker refuses to provide a statement of reasons because the request was not

made within 28 days or within a reasonable time, the decision maker must respond within 14

days from receipt of the request. That response must advise of the refusal and provide

reasons for refusing: section 13(5).

9.3.7.2 Responses

Once an entitled person has made their request the decision-maker then has to do one of the

following:

• provide the statement within 28 days: section 13(2);

(The statement should make intelligible the true basis of the decision and not

camouflage it.)239

• under subsection 13(7) if the Federal Court is of the opinion the statement does not

contain adequate particulars of findings on material questions of fact, an adequate 238 Ansett Transport Industries (Operations) Pty Ltd v Wraith [1983] FCA 179. 239 ARM Constructions Pty Ltd v DCT (NSW) (1986) 17 ATR 459.

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reference to the evidence or other material on which those findings were based or

adequate particulars of the reasons for the decision, the court may order the person

who furnished the statement to furnish to the taxpayer who made the request for the

statement, within such time as is specified in the order, an additional statement or

additional statements containing further and better particulars in relation to matters

specified in the order with respect to those findings, that evidence or other material or

those reasons; or

• under section 13(3), within 28 days either:

(i) advise the applicant/taxpayer that they do not believe they are an entitled

person, or

(ii) seek a court order determining that the applicant is not entitled to a statement.

(Note: in the case of (i), above under subsection 13(4A) the applicant can seek a

court order declaring that they are entitled to a statement.)240

Taxpayers should note that section 13(11)(c) excludes any decisions listed in Schedule 2.

Relevant to taxation matters are decisions relating to: the administration of criminal justice

(item e), decisions to initiate court proceedings to recover unpaid tax and penalties arising

under the ITAA 36241 (item f) and enforcement of judgments or recovery of money by the

Commonwealth (item m).

Section 13(8) states regulations can declare certain decisions or classes of decisions not to be

decisions for section 13 purposes. Currently there are no such decisions listed under the

Administrative Decisions (Judicial Review) Regulations 1985.

Having examined the AD(JR)A it is now time to examine the alternative legislative routes to

seek judicial review of a taxation decision. These are:

• a review by the High Court, under section 75 of the Constitution; and

• a review by the Federal Court under section 39B of the Judiciary Act 1903 (JA).

Claims under the AD(JR)A or JA or Constitution can be in the alternative. 240 Generally see Re Ansett Transport Industries (Operations) Pty Ltd and Another v Kenneth F Wraith and Others [1983] FCA 179. 241 Mostyn v DCT 86 ATC 4930.

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9.4 The Constitution242

9.4.1 Challenging Validity of Tax Laws

Sections 51 (ii), 53 and 55 are important provisions in the Constitution which prescribe

Parliaments powers to make laws in relation to taxation. If Parliament enacts laws in breach

of the empowering provisions they may be capable of being set aside by the High Court.

Section 51(ii) is probably the more important provision and provides that:

The Parliament shall, subject to this Constitution, have power to make laws for the

peace, order, and good government of the Commonwealth with respect to:

(i) …

(ii) taxation; but so as not to discriminate between States or parts of States.

The challenge, if ultimately successful, would bring a matter to a conclusion without having

to deal with the merits of an assessment.

Factors the courts take into account in such a challenge are set out below.

First regard must be had to the implied grant of legislative power inherent in the fact that the

heads of power appear in a Constitution. 243 It does not matter if a law falls within the ‘core’

of a grant of power under section 51, or within the incidental scope of the power, there is but

a single grant. The basic test for validity is whether a sufficient connection has been shown

between the law in question and the subject matter of the head of power.

Second whilst the title to an Act, its preamble and statement of objects may sometimes be

usefully referred to in aid of a task of constitutional characterisation, they may not usurp the

function of the courts. Neither the title nor preamble nor any statutory statement of an Act’s

objects can cure constitutional invalidity where the court finds such invalidity to exist.

Neither the economic consequences of a statute nor the motive behind its enactment is

determinative of its character. The problem in every case is to ascertain from the terms of the

law impugned its true nature and character.244

242 Commonwealth of Australia Constitution Act (1900). 243 The general principles, unless otherwise stated, are adapted from the judgment of Kirby J in Leask v Commonwealth of Australia 35 ATR 91. 244 Fairfax v FC of T [1965] HCA 64; (1965) 114 CLR 1[13].


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A tax does not cease to be valid merely because it regulates, discourages, or even definitely

deters the activities taxed. The principle applies even though the revenue obtained is

negligible.245

Next, tax laws may be unjust or cause harm but provided they meet the constraints prescribed

in the Constitution there is no limit to the power of Parliament to enact such laws.

Finally, if taxation is merely secondary to some other objective this does not disqualify a

charge from being a tax.246

Accordingly, if Parliament follows the criteria prescribed in the Constitution its power to

enact legislation with respect to taxation is unfettered. The purpose or motive of the

legislature in passing the enactment is irrelevant. If the statute is one with respect to taxation,

it does not matter if the imposition of the tax is inadvertent.

Challenges against legislation as being invalid often turn on whether an exaction is or is not a

tax. The High Court has set out what is a tax.247 Although success is rare there have been

cases where tax legislation has been found to be unconstitutional.248

This report now turns to the power of the High Court to review acts of the Commissioner.

9.4.2 Section 75 of the Constitution

Under section 75 of the Constitution, the High Court has original jurisdiction in relation to

matters where:

• the Commonwealth or a person suing or being sued on behalf of the

Commonwealth is a party: section 75(iii)

• a writ of mandamus or prohibition or an injunction is sought against an

officer of the Commonwealth: section 75(v).

These possible remedies are usually only considered by the High Court when, given the

circumstances, all other available remedies have been exhausted. 245 Ibid per Kitto J. 246 Northern Suburbs Cemetery Reserve Trust v Commonwealth (1993) 176 CLR 555. 247 Matthews v The Chicory Marketing Board (Vic) (1938) 60 CLR 263 read with Air Caledonie International and others v Commonwealth of Australia (1988) 82 ALR 385. Gaudron and Hayne JJ in Luton v Lessels [2002] HCA 13 [60] said ‘Imposing a financial burden on one group in society for the benefit of another group in society will often constitute a tax.’ 248 Air Caledonie International and others v Commonwealth of Australia (1988) 82 ALR 385.

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Since Futuris249challenges to an assessment can only be made under the Constitution or

Judiciary Act 1903 (JA) in circumstances where:

• the assessment is provisional or tentative (and even here it is arguable that a

taxpayer may be limited to a challenge under Part IVC of the TAA), or

• there has been:

o conscious maladministration; or

o deliberate failure to comply with the provisions of the Act; or

o fraud, bribery or other improper purpose; or

o misfeasance in public office.250

It is difficult to be successful in cases where there are allegations of the kind that would

justify a claim on the grounds set out above. As was noted in Futuris:251

Allegations that statutory powers have been exercised corruptly or with deliberate

disregard to the scope of those powers are not lightly to be made or upheld. Remarks

by Hill, Dowsett and Hely JJ in Kordan Pty Ltd v Federal Commissioner of Taxation

are in point. Their Honours said:

‘The allegation that the Commissioner, or those exercising his powers by

delegation, acted other than in good faith in assessing a taxpayer to income tax

is a serious allegation and not one lightly to be made. It is, thus, not

particularly surprising that applications directed at setting aside assessments

on the basis of absence of good faith have generally been unsuccessful.

Indeed, one would hope that this was and would continue to be the case. As

Hill J said in San Remo Macaroni Company Pty Ltd v FCT it would be a rare

case where a taxpayer will succeed in showing that an assessment has in the

relevant sense been made in bad faith and should for that reason be set aside.’

The aforesaid was applied and explained by the full bench of the Federal Court in Denlay in

the following terms:252

249 Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32. 250 Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32. John Bevacqua describes misfeasance as a tort that permits an individual to recover for the loss or damage suffered consequent upon administrative action taken by the holder of public office, if the officer acted maliciously or knew that the action was beyond power and was likely to harm the plaintiff. 251 Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32 [60].

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Those observations highlight that their Honours were concerned, in their reference to

conscious maladministration, with bad faith in the exercise of the decision-making

power under challenge and the need for proof of an allegation of bad faith against the

Commissioner or his officers. Their Honours were concerned with actual bad faith,

not with some form of “constructive” bad faith established by unwitting involvement

in an offence…The observations of the majority in Futuris do not support the

proposition that any breach of the law by officers of the Commissioner in the course

of processes anterior to, or even in the course of, making an assessment, suffices to

establish conscious maladministration which is apt to vitiate the assessment.

Conscious maladministration, as explained in Futuris, involves actual bad faith on the

part of the Commissioner or his officers.

9.5 Section 39B of the Judiciary Act 1903 (JA)

The power of judicial review under section 75 of the Constitution has been given to the

Federal Court via section 39B of the JA. The Federal Court’s jurisdiction complements that

of the High Court. However, unlike section 75 of the Constitution, section 39B is not

‘constitutionally entrenched’ and so it can be amended or repealed.

Since the decision in Futuris253 the JA may only be used to challenge an assessment in the

limited circumstances as described in the previous section.

The grounds of review under the JA or Constitution can be the same as for claims under the

AD(JR)A but are not limited to such grounds. The prerogative writs (mandamus, certiorari,

prohibition and injunction) discussed in sections 11.3 to 11.6 of this report are examples of

the type of relief that may be sought in these types of cases.

9.6 General Comment on Judicial Review

Often the relief where there has been a failure to act procedurally fairly falls under one or

more of the AD(JR)A or JA or Constitution.

For example, in Stewart the Australian Crime Commission had obtained documents created

by the taxpayer’s accountants under a search warrant and had made them available to the

Commissioner. The case was concerned with the access the Commissioner had to these 252 Denlay v Commissioner of Taxation [2011] FCAFC 63 [76-78]. 253 Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32 [66].

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documents. It was inter alia contended such access was a breach of the accountant’s

concession (see section 9.2.1 above). The court noted:

But if the Commissioner puts in place decision-making procedures which give the

impression that such confidences will be observed then it will generally be

procedurally unfair for him to proceed on some other basis without first hearing from

the affected person. In such a case, the decision maker’s breach of the requirements of

procedural fairness will take the exercise of power outside the statutory grant in s 8 of

the Income Tax Assessment Act 1936 (or s 1.7 of the Income Tax Assessment Act 1997

or s 3A of the Taxation Administration Act 1953). In each of those cases there will be

an excess of jurisdiction which this Court can remedy under s 39B(1A)(c) of the

Judiciary Act 1903 (Cth).254

The taxpayer in Stewart also argued that the Commissioner’s decision to access these

documents was so unreasonable that that no reasonable decision maker could have arrived at

it. This is commonly referred to as the Wednesbury principle. The High Court explained this

principle in SZMDS.255

In the context of the Tribunal’s decision here, “illogicality” or “irrationality”

sufficient to give rise to jurisdictional error must mean the decision to which the

Tribunal came, in relation to the state of satisfaction required under s 65, is one at

which no rational or logical decision maker could arrive on the same evidence. In

other words, accepting, for the sake of argument, that an allegation of illogicality or

irrationality provides some distinct basis for seeking judicial review of a decision as

to a jurisdictional fact, it is nevertheless an allegation of the same order as a complaint

that a decision is “clearly unjust” or “arbitrary” or “capricious” or “unreasonable” in

the sense that the state of satisfaction mandated by the statute imports a requirement

that the opinion as to the state of satisfaction must be one that could be formed by a

reasonable person. The same applies in the case of an opinion that a mandated state of

satisfaction has not been reached. Not every lapse in logic will give rise to

jurisdictional error. A court should be slow, although not unwilling, to interfere in an

appropriate case. 254 Stewart v The Deputy Commissioner of Taxation [2011] FCA 336 [29]. 255 Minister for Immigration and Citizenship v SZMDS [2010] HCA 16.

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What was involved here was an issue of jurisdictional fact upon which different

minds might reach different conclusions. The complaint of illogicality or irrationality

was said to lie in the process of reasoning. But, the test for illogicality or irrationality

must be to ask whether logical or rational or reasonable minds might adopt different

reasoning or might differ in any decision or finding to be made on evidence upon

which the decision is based. If probative evidence can give rise to different processes

of reasoning and if logical or rational or reasonable minds might differ in respect of

the conclusions to be drawn from that evidence, a decision cannot be said by a

reviewing court to be illogical or irrational or unreasonable, simply because one

conclusion has been preferred to another possible conclusion.256 (Emphasis added).

The Wednesbury principle is encapsulated in section 5(e) AD(JR)A as one of the grounds for

judicial review of an administrative action.

The report now considers whether taxpayers have any rights against the Commissioner under

the common-law.

256 Ibid [130-131] per Crennan and Bell JJ.

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10. Common Law

There are a range of rights available to entities under the common law. The issue that arises

here is whether they extend to taxpayers in their capacity as such. These rights will be

considered under different heads.

10.1 Discretions

In Pickering257 Cooper J held that:

The respondent when asked to exercise the discretion in favour of the second, third,

fourth and fifth applicants was under a legal duty to them to act fairly. In Inland

Revenue Commissioners v National Federation of Self Employed and Small

Businesses Ltd [1982] AC 617, Lord Scarman said (at 651):-

“... I am persuaded that the modern case law recognises a legal duty owed by

the revenue to the general body of the taxpayers to treat taxpayers fairly; to

use their discretionary powers so that, subject to the requirements of good

management, discrimination between one group of taxpayers and another does

not arise; to ensure that there are no favourites and no sacrificial victims.”

Dowsett J dealing with the identical issue noted that258:

Different discretions usually involve different considerations. The principle identified

by Cooper J appears to be that a discretion should be exercised consistently. It does

not follow that different discretions must be exercised so as to produce outcomes

which are the same. Further, there is no evidence that the respondent was ever asked

to exercise any such discretion or that he declined to do so.

From the foregoing it seems clear that the Commissioner cannot exercise the same discretion

differently between persons having identical tax characteristics.

It seems that where the Commissioner exercises discretion a taxpayer is entitled to reasons

for the manner in which the discretion was exercised. As Barwick CJ noted: 259

257 Pickering &Ors v FCT 97 ATC 4893, 4900. 258 Pickering v Deputy Commissioner of Taxation [1998] FCA 16905. 259 Giris Pty Ltd v FC of T 69 ATC 4015; Kolotex Hosiery (Aust) Pty Ltd v FC of T 75 ATC 4028 [6].

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However, in my opinion, the Commissioner is under a duty in each case to form an

opinion and the taxpayer is entitled to be informed of it, and upon the taxpayer's

request, the Commissioner should inform the taxpayer of the facts he has taken into

account in reaching his conclusion.

There is nothing exceptional about this and there are legislative provisions that are to similar

effect. See for example section 13 AD(JR)A and sections 37 and 38 AATA.

10.2 Can the Commissioner be Prevented from Issuing an Assessment Even if it is Incorrect?

Lucas260 was a case where a taxpayer sought to prevent the Commissioner issuing an

assessment. It was alleged by the taxpayer that the cause of action relied upon was the right

of the plaintiff to prevent the Commissioner from exercising a statutory power when he had

no authority to do so. It was said that the Commissioner had no authority or power to assess

the plaintiff to additional tax in the manner which it was feared he would attempt to do.

Young CJ held that

• to the extent that any duty is owed by the Commissioner that duty is owed not to

taxpayers but the Crown; and

• the Commissioner cannot be restrained from issuing an assessment that is incorrect.

Doubt on the validity of Lucas was raised in Biga Nominees.261 Biga Nominees was a case

where the respondent sought declaratory relief that a certain vehicle was exempt from sales

tax under legislation passed in the 1930’s. The Commissioner argued inter alia that the

taxpayer had no standing to approach the court for relief as the Commissioner owed a duty

only to the Crown. This legislation did not have provisions equivalent to Part IVC TAA and

an assessment could not be challenged in Biga Nominees. The court found in favour of the

taxpayer. This case is distinguishable as under the current legislation Part IVC is the only

way (subject to some minor exceptions) an assessment can be challenged.

Gyles J had occasion to revert to this issue in Young262 where the Commissioner had

indicated he would no longer allow deductions for certain types of transactions. The taxpayer

260 Lucas v. O’Reilly 79 ATC 4081. 261 Federal Commissioner of Taxation v Biga Nominees Pty. Ltd 88 ATC 4270. 262 Young v FCT 2000 ATC 4133 [19-20].

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sought declaratory relief that the Commissioner was to assess as he had done in the past. The

learned judge said:

The mere fact that the act which it is alleged would be a breach of the law will not

take place until a future time does not necessarily establish that a question as to the

lawfulness of the act is hypothetical. Whether this is so or not will be influenced by

the effect that such an act would have. In the present case, all that is to be done is that

an assessment will be issued. There is no other action which will have any directly

adverse effect upon the applicant such as would normally be found quia timet relief...

This is particularly true where the act in question, assessment, cannot, for relevant

purposes, be challenged otherwise than in accordance with Pt IVC of the Taxation

Administration Act 1953 (Cth) by reason of the operation of s 175 and s 177 of the

Act (references deleted). Whilst, as Dawson J pointed out in Oil Basins Ltd (supra),

the sections do not in terms relate to the period anterior to assessment, it would, in my

opinion, be anomalous to permit issues which could not be agitated after assessment

to be agitated before assessment, when it is only the assessment which gives effect to

the unlawfulness so far as the applicant is concerned. (Emphasis added).

The Commissioner cannot be prevented from issuing an assessment even if incorrect. Part

IVC TAA provides the remedy if an assessment is incorrect.

The report now turns to the vexed question whether the Commissioner owes taxpayers a duty

of care.

10.3 Is a Duty of Care Owed to Taxpayers?

If a duty of care is owed by the Commissioner to a taxpayer then, in the event of breach of

that duty, an action for damages or possible other relief may lie against the Commissioner.

This section seeks to determine whether such a duty is owed.

In Crimmins263 McHugh J set out 6 questions the answers to which, in the learned judge’s

opinion, would indicate whether an entity such as the ATO would owe taxpayers a duty of

care in their capacity as taxpayer. The questions were:

263 Crimmins v Stevedoring Committee [1999] HCA [93].

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1. Was it reasonably foreseeable that an act or omission of the defendant, including a

failure to exercise its statutory powers, would result in injury to the plaintiff or his or

her interests? If no, then there is no duty.

2. By reason of the defendant’s statutory or assumed obligations or control, did the

defendant have the power to protect a specific class including the plaintiff (rather than

the public at large) from a risk of harm? If no, then there is no duty.

3. Was the plaintiff or were the plaintiff’s interests vulnerable in the sense that the

plaintiff could not reasonably be expected to adequately safeguard himself or herself

or those interests from harm? If no, then there is no duty.

4. Did the defendant know, or ought the defendant to have known, of the risk of harm

to the specific class including the plaintiff if it did not exercise its powers? If no, then

there is no duty.

5. Would such a duty impose liability with respect to the defendant's exercise of ‘core

policy-making’ or ‘quasi-legislative’ functions? If yes, then there is no duty.

6. Are there any other supervening reasons in policy to deny the existence of a duty of

care (e.g., the imposition of a duty is inconsistent with the statutory scheme, or the

case is concerned with pure economic loss and the application of principles in that

field deny the existence of a duty)? If yes, then there is no duty.

Each of these questions and their answers suggests the ATO would not owe such a duty.

Hayne J in Crimmins noted:264

Put at its most general and abstract level, the fundamental reason for not imposing a

duty in negligence in relation to the quasi-legislative functions of a public body is that

the function is one that must have a public rather than a private or individual focus.

To impose a private law duty will (or at least will often) distort that focus. This kind

of distinction might be said to find reflection in the dichotomy that has been drawn

between the operational and the policy decisions or functions of public bodies. And a

quasi-legislative function can be seen as lying at or near the centre of policy functions

264 Ibid [292].

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if policy and operational functions are to be distinguished. But as more recent

authority suggests, that distinction may not always be useful and I do not need to

apply it in deciding the present matter (Emphasis added).

In Crimmins Gaudron J noted that a factor to be considered when seeking to determine if a

duty of care is owed is to determine ‘whether the powers and functions conferred on the

Authority are compatible with the existence of that duty.265

The foregoing suggests the Commissioner does not owe such a duty to taxpayers in the

performance of his duties in administering the tax laws. Bevacqua appears to be of the same

view where he notes that:

There is the policy question of statutory intent and statutory context. In tax, this

translates to a concern with assessing whether and to what extent a tortious duty of

care to taxpayers is compatible with the public duties and powers of the

Commissioner set out in tax and tax administration legislation. It is the judicial

approach to determining this public policy issue which has provided an apparent

extended scope of immunity from tortious suit for the Commissioner of Taxation.266

Finally on the issue that the Commissioner owes taxpayers a duty of care such as to found a

claim in tort was considered in Harris267 where Grove J said:

I deal first with negligence. There is no identified duty of care specified as being

owed by the defendants to the plaintiff. Such a duty is not established by reference to

proclamations such as the Taxpayers Charter which express aims of treating citizens

from whom tax is to be levied, fairly and reasonably. Even if there was a departure

from some standard specified in such a document, it could not vest a private right to

recover tort damages in a person affected by the departure. In recent times the

determination of the existence of a duty of care has been directed to be established by

recognition of novel areas of duty on an incremental or case by case basis: Perre v

Apand Pty Limited [1999] HCA 36; 1999 198 CLR 180; Crimmins v Stevedoring

Industry Finance Committee [1999] HCA 59; 1999 200 CLR 1. There is no basis

265 Ibid [18]. 266 Bevacqua gives detailed consideration to claims for negligence against the Commissioner. John Bevacqua, Taxpayer rights to compensation for tax office mistakes, CCH and ATTA Doctoral series No3, CCH Australia Ltd. 267 Harris v Deputy Commissioner of Taxation [2001] NSWSC 550.


http://www.austlii.edu.au/cgi-bin/LawCite?cit=1999%20198%20CLR%20180?stem=0&synonyms=0&query=title(harris%20)


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upon which to conclude that there is a tort liability in the Australian Taxation Office

or its named officers towards a taxpayer arising out of the lawful exercise of functions

under the Income Tax Assessment Act. The pleading does not suggest that the steps

taken were outside of the scope of the Act. There is no identified act or omission

which could give rise to an entitlement of the plaintiff to damages against any

intended defendant.

The document misconceives the basis upon which damages may be payable to one

who suffers loss as a result of an alleged breach of statutory duty. An action for

breach of statutory duty is not available to all persons suffering special damage

consequent upon a breach of public duty. What must be shown is that the duty was

owed to the injured party at least in the sense that the duty was created for the benefit

of a class of person less extensive than the general public of which the injured party

was a member. To state this is not to imply that there can be discerned any asserted

breach for which damages would be available to a member of a definable class. I have

already commented that much of the verbiage in the pleading adverts to alleged

procedural unfairness for which tort damages are not an available remedy. There is

nothing in this pleading, whether referring to statute or regulation, which could vest a

cause of action for damages in the plaintiff.268

Bevacqua’s views on the policy questions to be considered in connection with the issues of

statutory intent and statutory context reinforce the views expressed in this report that the

Commissioner does not owe taxpayers a duty of care. Bevacqua is of the view that these

questions translate to a concern with assessing whether and to what extent a tortious duty of

care to taxpayers is compatible with the public duties and powers of the Commissioner set

out in tax and tax administration legislation. It is the judicial approach to determining this

public policy issue which has provided an apparent extended scope of immunity from tortious

suit for the Commissioner of Taxation.269

The foregoing suggests that it is very difficult to find any duty of care that the ATO might

owe to taxpayers in performing its functions in administering the tax laws. Further the recent

decisions which appear to give the ATO and its administration of the tax laws primacy

268 Harris v Deputy Commissioner of Taxation [2001] NSWSC 550 [12, 13]. 269 See for example Harris v Deputy Commissioner of Taxation [2001] NSWSC 550.


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reinforce this view.270 To the extent such a duty exists it will be very difficult for a taxpayer

to be successful in any claim against the ATO.

A related issue is whether the Commissioner can be held vicariously liable for the acts or

omissions of ATO staff that cause physical or property damage to a taxpayer in

circumstances where the Commissioner or more properly ATO staff go outside the ambit of

the powers granted to them, such as in enforcing rights under section 353-10 TAA. This is

considered next.

With claims other than for pure economic loss (considered in section 10.4 below) Gummow

and Hayne JJ in Lepore271 note, after an extensive review of the law relating to vicarious

liability:

For present purposes, it is enough to conclude that when an employer is alleged to be

vicariously liable for the intentional tort of an employee, recovery against the

employer on that basis should not be extended beyond the two kinds of case identified

by Dixon J in Deatons: first, where the conduct of which complaint is made was done

in the intended pursuit of the employer's interests or in the intended performance of

the contract of employment or, secondly, where the conduct of which complaint is

made was done in the ostensible pursuit of the employer's business or the apparent

execution of the authority which the employer held out the employee as having.

If claims for personal injury or damage to property were made arising from the administration

of the tax laws it is possible the ATO staff member may have acted outside the purpose for

which the servant was employed. If, in the unlikely event an ATO staff member acted in

such a way that caused damage (and acting within the course and scope of their employment

with the ATO) the Commissioner would be liable.

Further in Futuris the majority noted that:272

The issue here is whether, upon its proper construction, s 175 of the Act brings

within the jurisdiction of the Commissioner when making assessments a deliberate

failure to comply with the provisions of the Act. A public officer who knowingly

270 See for example Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41, Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32 [60]. 271 New South Wales v Lepore [2003] HCA 4 [239]. 272 Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32 [55].

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acts in excess of that officer’s power may commit the tort of misfeasance in public

office in accordance with the principles outlined earlier in these reasons. Members

of the Australian Public Service are enjoined by the Public Service Act (s 13) to

act with care and diligence and to behave with honesty and integrity. This is

indicative of what throughout the whole period of the public administration of the

laws of the Commonwealth has been the ethos of an apolitical public service

which is skilled and efficient in serving the national interest. These considerations

point decisively against a construction of s 175 which would encompass deliberate

failures to administer the law according to its terms.

The foregoing reflects the view that the provisions of the tax laws providing for the

conclusive nature of assessments do not preclude claims for misfeasance in public office (a

deliberate failure to administer the law according to its terms). This is subject to what was

stated by the majority in Mengel273who noted that:

So far as policy is concerned, it is to be borne in mind that, although the tort is

the tort of a public officer, he or she is liable personally and, unless there is de

facto authority, there will ordinarily only be personal liability (Emphasis

added).

It seems if a claim for misfeasance in public office were instituted, only the tax officer

concerned would be liable. If the ATO accepts some form of liability or indemnifies the

member of staff that is a different issue.274

The report now turns to claims for pure economic loss.

10.4 Pure Economic Loss

This part first considers the Scheme for Compensation for Detriment caused by Defective

Administration and then looks to claims for pure economic loss.

273 Northern Territory v Mengel [1995] HCA 65 [60]. 274 See for example Young and Commissioner of Taxation [2008] AATA 155 [2].



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10.4.1 Scheme for Compensation for Detriment Caused by Defective Administration

The Commissioner accepts that where a claim under the Scheme for Compensation for

Detriment caused by Defective Administration arises it could be as a consequence of a legal

liability (for example, negligence).275 Such claims arise inter alia as a consequence of the

executive power of the Commonwealth under section 61 of the Constitution and the PGPA. If

a claim is made under the Scheme for Compensation for Detriment caused by Defective

Administration, the relevant Minister and possibly the Commissioner, in their absolute

discretion, may make an award in favour of a taxpayer if that taxpayer has suffered detriment

as a result of defective administration. The prospects of success are slim in these

circumstances.

This section now reviews claims for pure economic loss.

10.4.2 Claims for Pure Economic Loss

McHugh J describes pure economic loss in the following terms:

Where a defendant knows or ought reasonably to know that its conduct is likely to

cause harm to the person or tangible property of the plaintiff unless it takes reasonable

care to avoid that harm, the law will prima facie impose a duty on the defendant to

take reasonable care to avoid the harm. Where the person or tangible property of the

plaintiff is likely to be harmed by the conduct of the defendant, the common law has

usually treated knowledge or reasonable foresight of harm as enough to impose a duty

of care on the defendant. Where a person suffers pure economic loss, however, the

law has not been so willing to impose a duty of care on the defendant. By pure

economic loss, I mean loss which is not the result of injury to person or tangible

property.276

The manner in which the tax legislation has been drafted and interpreted by the courts

suggests that few claims, if any, for monetary compensation as a consequence of pure

economic loss would be entertained. There are various reasons for this such as the need to

275 Applying for Compensation < https://www.ato.gov.au/Forms/Applying-for-compensation/> (Last modified 5 May 2015). 276 Perre v Apand Pty Ltd [1999] HCA 36; 198 CLR 180 [73].

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avoid the imposition of liability in an indeterminate amount for an indeterminate time to an

indeterminate class.277

It seems that to the extent conduct of the Commissioner or any staff of the ATO acting in

their capacity as such gives rise to a claim in tort it will usually be for pure economic loss and

then generally for negligent misstatement such as might occur when the Commissioner issues

non-binding statements and a taxpayer relies on them. A majority of the High Court in San

Sebastian278 had this to say about claims of this nature:

There is a special problem in defining the circumstances in which a duty of care arises

in the context of statements. One facet of this problem is that it is more difficult to

apply the standard of reasonable foreseeability to the consequences which flow from

the making of a statement, than it is to apply that standard to the consequences which

flow from acts. This is because damage flows, not immediately from the defendant's

act in making the statement, but from the plaintiff's reliance on the statement and his

action or inaction which produces consequential loss. A second facet of the problem

arises from the propensity of negligent statements to generate loss which is purely

economic. The recovery of economic loss has traditionally excited an apprehension

that it will give rise to indeterminate liability. And there is also an apprehension that

the application of the standard of reasonable foreseeability may allow recovery of

economic loss of such magnitude and in such circumstances as to provoke doubts

about the justice of imposing liability for it on the defendant.

Claims in tort against the Commissioner for damage to person or property or for pure

economic loss seem unlikely to succeed.

The report now discusses the various court processes and similar stratagems that may be of

assistance to taxpayers.

277 Bryan v Maloney (1995) 182 CLR 609, 618. 278 San Sebastian Pty Ltd v Minister [1986] HCA 68 [15].

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11. Court Processes

There are a number of processes initiated by the courts which may be of use to taxpayers.

Before considering specific aspects, it may be apposite to cite what the majority of the High

Court had to say on the ability of the courts to utilise new processes and procedures to meet

the exigencies of cases.

The course which the proceedings followed in the Federal Court can only be

understood against the background of the unavoidable complexity, costs and delays

which would attend the judicial resolution of the appellants’ individual claims by

separate and individual proceedings. Only then will the desire of the parties (and of

the Federal Court itself) to find an efficient way to proffer for judicial decision any

justiciable issues common to the many claims before that Court be appreciated. The

Constitution does not require this Court to adopt a view of the judicial power which

would unduly restrict innovative procedures and flexible remedies made available in

the courts to resolve new and complex problems in modern litigation. Within

applicable constitutional restraints the procedures of the courts should be allowed to

adapt to the necessities of the time. Otherwise the inevitable consequence will be that

courts become irrelevant to, or effectively unavailable for, the determination of the

disputes of parties such as those now before this Court. That cannot be the purpose

and meaning of the Australian Constitution in providing for the Judicature as a branch

of the government of the nation.279

This report now considers various court processes. These processes do not constitute rights

in themselves (unless otherwise stated) but merely means by which a taxpayer may enforce

those rights they have.

11.1 Summary Judgment

A party may apply for summary judgment in the Federal Court (not the AAT) where in that

party’s opinion it believes the other side has no reasonable prospect of success or no

reasonable cause of action or defence is disclosed.280 Such an application may also be made

in respect of part of a claim or defence. If an order is made dismissing part of the proceeding,

the proceeding may be continued for that part of the proceeding not disposed of by the order.

279 Bass v Permanent Trustee Co Ltd [1999] HCA 9 [71]. 280 Section 31(A) Federal Court of Australia Act 1976; Federal Court Rule 26.01.



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In Spencer281 French CJ and Gummow J dealing with summary judgment said:

Where there are factual issues capable of being disputed and in dispute, summary

dismissal should not be awarded to the respondent simply because the Court has

formed the view that the applicant is unlikely to succeed on the factual issue. Where

the success of a proceeding depends upon propositions of law apparently precluded by

existing authority, that may not always be the end of the matter. Existing authority

may be overruled, qualified or further explained. Summary processes must not be

used to stultify the development of the law. But where the success of proceedings is

critically dependent upon a proposition of law which would contradict a binding

decision of this Court, the court hearing the application under s 31A could justifiably

conclude that the proceedings had no reasonable prospect of success.

Collier J in Hii noted that ‘As has been repeatedly observed in cases dealing with summary

judgment, the Court ought not lightly make an order for summary judgment.’282

It is difficult to obtain orders of this type particularly in tax proceedings although the remedy

is available. Summary judgment was sought in McDonald's. 283 Gyles J considering an

application for summary judgment by the taxpayer against the Commissioner said:

[S]ection 14ZZO of the Administration Act provides that the applicant has the burden

of proving that the declaration should not have been made or should have been made

differently. An application for summary judgment by a party which bears the burden

of proof can be properly described as ambitious, particularly where the proceeding is

at an early stage – no evidence has been filed, there has been no discovery, no

subpoenas have been issued and where there are no formal pleadings. It must also be

borne in mind that the Commissioner has no first-hand knowledge of the underlying

facts and circumstances (Emphasis added).

It seems it would be difficult for a taxpayer to obtain summary judgment against the

Commissioner when an assessment is being challenged. An application for summary

judgment by the Commissioner was successful in Roberts.284

281 Spencer v Commonwealth of Australia [2010] HCA 28 [28]. 282 Hii v Commissioner of Taxation [2015] FCA 375 [44]. 283 McDonald’s Australia Ltd v Commissioner of Taxation [2008] FCA 37. 284 Roberts v Deputy Commissioner of Taxation [2013] FCA 1108.


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11.2 Declaratory Relief

In order to obtain such relief a party must show various things described by Lockhart J

delivering the judgment of the full court in Aussie Airlines285 as follows:

• the proceeding must involve the determination of a question that is not abstract or

hypothetical. There must be a real question involved, and the declaratory relief must

be directed to the determination of legal controversies: Re Judiciary Act 1903 and

Navigation Act 1912 (1921) 29 CLR 257. The answer to the question must produce

some real consequences for the parties.

• the applicant for declaratory relief will not have sufficient status if relief is ‘claimed

in relation to circumstances that [have] not occurred and might never happen’ or if the

court's declaration will produce no foreseeable consequences for the parties

(references omitted).

• the party seeking declaratory relief must have a real interest to raise it;

• generally there must be a proper contradictor.

The relief is discretionary.286

Declaratory relief in tax cases is dependent on whether an assessment has or has not been

issued. Thus in Platypus Leasing287 after an assessment was handed up to the court it

dismissed the application for relief. The courts have held that once an assessment has been

issued it is precluded from dealing with issues related to such assessments except (subject to

limited exceptions) under Part IVC TAA.288

As relief is discretionary, if other relief is available to the taxpayer there is a risk the

application will not be granted.

A taxpayer cannot test whether an assessment is valid by means of this process.289

285 Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 139 ALR 663 at 670-671. 286 Ainsworth v Criminal Justice Commission (1992) 175 CLR 564. 287 Platypus Leasing Inc v Commissioner of Taxation (2005) 61 ATR 239. 288 Platypus Leasing Inc & v Commissioner of Taxation [2005] NSWCA 399. 289 F J Bloemen Pty Ltd v Federal Commissioner of Taxation [1981] HCA 27; (1981) 147 CLR 360.

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The applicant for declaratory relief has the burden of proof. This applies equally to the

Commissioner if he seeks declaratory relief.

11.3 Mandamus

Where a legal duty is imposed on a public official who refuses to perform that duty an order

of mandamus may be granted compelling performance of that duty provided it cannot be

enforced by any other adequate legal remedy. A court may order a public officer to exercise a

discretionary power but will not direct how that power is to be discharged.

The High Court unanimously held in Ozone Theatres290 that in relation to all the prerogative

writs (mandamus, certiorari, prohibition and injunction):

The writ…is not a writ of right nor is it issued as of course. There are well recognized

grounds upon which the court may, in its discretion, withhold the remedy.

For example, the writ may not be granted if a more convenient and satisfactory

remedy exists, if no useful result could ensue, if the party has been guilty of

unwarrantable delay or if there has been bad faith on the part of the applicant, either

in the transaction out of which the duty to be enforced arises or towards the court to

which the application is made. The court's discretion is judicial and if the refusal of a

definite public duty is established, the writ issues unless circumstances appear making

it just that the remedy should be withheld. The question whether there are any

grounds for refusing the remedy will be discussed after the question of the jurisdiction

of the Court of Conciliation and Arbitration has been considered.

These prerogative writs can be sought separately or in conjunction with each other.

11.4 Certiorari

Certiorari is an order setting aside a decision. If a decision has been made unlawfully an

order for certiorari may be sought.

290 R v Commonwealth Court of Conciliation & Arbitration; Ex parte Ozone Theatres (Aust) Ltd [1949] HCA 33; (1949) 78 CLR 389 [6-7].

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11.5 Prohibition

This order precludes a party from doing something illegal or continuing with unlawful

conduct.

11.6 Injunction

An injunction can prevent or require certain action.

The court is able to grant one or more of these prerogative writs in the same order. As the

High Court noted:

The power to grant declaratory and injunctive relief in addition to the power to quash

or set aside (with effect from a specified date) an impugned decision is clear. It is to

allow flexibility in the framing of orders so that the issues properly raised in the

review proceedings can be disposed of in a way which will achieve what is ‘necessary

to do justice between the parties’291

The following section is also a form of court process but is not available to taxpayers. Only

the Commissioner may avail himself of this form of relief.

11.7 Mareva Injunction

The Commissioner can seek a ‘Mareva injunction’ from a Court to prevent a taxpayer or a

related-party dissipating or transferring assets beyond the reach of the Commissioner. The

courts accept that, in some cases, a Mareva injunction may be ordered before a tax debt is

payable. A Mareva injunction can also impose travel restrictions on a taxpayer. A breach of a

Mareva injunction constitutes a contempt of court, and can result in imprisonment.

To obtain a Mareva injunction, five elements must be established:

1. a prima facie cause of action;

2. full disclosure is made to the court;

3. there must be assets available, though these need not ever have been in Australia;

4. there is a real risk of dissipation of the assets; and

291 Park Oh Ho v Minister for Immigration & Ethnic Affairs [1989] HCA 54; (1989) 167 CLR 637 [11].

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5. an undertaking is given as to damages.292

A Mareva order is not there just for the asking. In Rosenthal293 O’Bryan J said:

There must be demonstrated a real danger that the defendant intends to remove assets

from the jurisdiction or dispose of assets within the jurisdiction to defeat the plaintiff.

One might suppose that the first-named defendant is most apprehensive about the

outcome of this litigation. The amount claimed with additional tax is a vast sum.

However, the Mareva procedure was not designed to freeze a defendant’s assets to

make a plaintiff’s claim fruitful. There must be evidence to show that the risk to the

assets has materialised or will probably materialise.

The High Court has noted that:

In Australia, for many years, Mareva orders have been made in aid of the exercise of

the specific remedies provided for execution against judgment debtors. Such orders

are not interlocutory as they may operate after the recovery of final judgment, yet they

are impermanent in the sense that they preserve assets and assist and protect the use of

methods of execution and do not substitute for them. In respect of their operation

after, as well as before, the making of orders for final relief, the Mareva order should,

in general, be supported by an undertaking as to damages.294

A Mareva injunction can be issued in conjunction with a garnishee order.295

Although there are a number of jurisdictional facts that must be present for the grant of a

Mareva injunction the Commissioner does from time to time apply for such orders and they

are generally granted. A recent example is the Regent Pacific decision in the Federal

Court.296

This report now turns to consider the various forms of estoppel and whether their application

affords a taxpayer any rights.

292 See for example Mareva Compania Naviera SA v International Bulkcarriers SA (1975) 2 Lloyd’s Rep 509; (1980) 1 All ER 213. 293 Deputy Federal Commissioner of Taxation v. Rosenthal & Ors 85 ATC 4031. 294 Cardile v Led Builders Pty Ltd [1999] HCA 18. 295 DFC of T v Zumtar 93 ATC 4351. 296 Commissioner of Taxation v Regent Pacific Group Limited [2013] FCA 36.

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12. Estoppel

Rich J has described estoppel in the following terms:

In Greenwood v. Martins Bank Ltd, Lord Tomlin said:-

The essential factors giving rise to an estoppel are I think:- (1) A representation or

conduct amounting to a representation intended to induce a course of conduct on the

part of the person to whom the representation is made. (2) An act or omission

resulting from the representation, whether actual or by conduct, by the person to

whom the representation is made. (3) Detriment to such person as a consequence of

the act or omission.

Mere silence cannot amount to a representation, but when there is a duty to disclose

deliberate silence may become significant and amount to a representation.297

There are various forms of estoppel such as being estoppel by judgment (also known as res

judicata) (considered in the next section), issue estoppel which is an extension of the res

judicata principle, estoppel by deed and estoppel by representation being estoppel by word or

conduct (the most common). Where a judgment has been given, issue estoppel arises not

only in respect of the right and cause of action claimed and put in suit (res judicata), but also

in respect of every issue of fact or law alleged or denied in the proceedings, the existence of

which was a matter necessarily decided in the proceedings.298 Estoppel by deed was

described in Case 2/2014299 as follows:

Estoppel by deed refers to the principle that a party to a deed is prevented from

disputing any distinct allegation of fact which he or she made in it. Relevantly, it is a

rule of evidence based on the principle that an unambiguous statement in a deed must

be taken as binding between the parties and therefore not allowing any contradictory

proof. An important qualification, however, is that the statement of fact must be

precise and unambiguous and, in this regard, it is not enough to draw inferences from

the deed.

297 Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 [4]. 298 CCH tax library [¶81-125]. 299 Case 2/2014, 2014 ¶ATC 1-064 [57].

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Estoppel by deed should not impact on the Commissioner in performing his tasks in

administering the tax laws but if he enters into an agreement and both parties act upon the

agreement he cannot be seen to deny its terms and not act accordingly.300 Such a claim could

be based on estoppel or simply under the law of contract.

In so far as the Commissioner is obliged to determine the liability to tax and issue an

assessment to taxpayers Kitto J noted that ‘No conduct on the part of the commissioner could

operate as an estoppel against the operation of the Act.’301 Estoppel by representation does

not operate against the Commissioner in these circumstances. In AGC Hill J stated this

principle succinctly when he said:

The last question merely reflects the reasons why there is no room for the doctrine of

estoppel operating to preclude the Commissioner of Taxation from pursuing his

statutory duty to assess tax in accordance with law. The Income Tax Assessment Act

imposes obligations upon the Commissioner and creates public rights and duties,

which the application of the doctrine of estoppel would thwart. In my view the

doctrine of estoppel cannot be invoked by a taxpayer so as to prevent the

Commissioner assessing pursuant to his duty so to do.302

No statement or publication (other than rulings) can operate to prevent the Commissioner

from assessing according to law.

The Commissioner on the other hand could raise estoppel against a taxpayer but would have

to make it clear at the outset that he intends to do so.303

300 Queensland Trustees Ltd v Fowles [1910] HCA 51; (1910) 12 CLR 111. 301 Federal Commissioner of Taxation v Wade [1951] HCA 66; (1951) 84 CLR 105 [7]. 302 AGC (Investments) Ltd v FC of T 91 ATC 4180, 4195. 303 Saffron v FCT 91 ATC 4501.

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13. Res Judicata

Justice Dixon described this estoppel in the following manner:

A judicial determination directly involving an issue of fact or of law disposes once for

all of the issue, so that it cannot afterwards be raised between the same parties or

their privies. The estoppel covers only those matters which the prior judgment, decree

or order necessarily established as the legal foundation or justification of its

conclusion, whether that conclusion is that a money sum be recovered or that the

doing of an act be commanded or be restrained or that rights be declared. The

distinction between res judicata and issue estoppel is that in the first the very right or

cause of action claimed or put in suit has in the former proceedings passed into

judgment, so that it is merged and has no longer an independent existence, while in

the second, for the purpose of some other claim or cause of action, a state of fact or

law is alleged or denied the existence of which is a matter necessarily decided by the

prior judgment, decree or order.

Nothing but what is legally indispensable to the conclusion is thus finally closed or

precluded. In matters of fact the issue estoppel is confined to those ultimate facts

which form the ingredients in the cause of action, that is, the title to the right

established. Where the conclusion is against the existence of a right or claim which in

point of law depends upon a number of ingredients or ultimate facts the absence of

any one of which would be enough to defeat the claim, the estoppel covers only the

actual ground upon which the existence of the right was negatived. But in neither case

is the estoppel confined to the final legal conclusion expressed in the judgment,

decree or order. In the phraseology of Coleridge J. in R. v. Inhabitants of the

Township of Hartington Middle Quarter, the judicial determination concludes, not

merely as to the point actually decided, but as to a matter which it was necessary to

decide and which was actually decided as the groundwork of the decision itself,

though not then directly the point at issue. Matters cardinal to the latter claim or

contention cannot be raised if to raise them is necessarily to assert that the former

decision was erroneous.

In the phraseology of Lord Shaw, ‘a fact fundamental to the decision arrived at’ in the

former proceedings and ‘the legal quality of the fact’ must be taken as finally and

112 Taxpayer Rights

conclusively established (Hoystead v. Commissioner of Taxation). But matters of law

or fact which are subsidiary or collateral are not covered by the estoppel. Findings,

however deliberate and formal, which concern only evidentiary facts and not ultimate

facts forming the very title to rights give rise to no preclusion. Decisions upon matters

of law which amount to no more than steps in a process of reasoning tending to

establish or support the proposition upon which the rights depend do not estop the

parties if the same matters of law arise in subsequent litigation (Emphasis added).304

Notwithstanding the foregoing in it was held that the determination of an issue in one income

year is not determinative of the identical issue in a different income year. 305

An important decision from a taxpayer perspective is the decision in the High Court in

Chamberlain.306 In this case the Commissioner sued for certain monies owed by virtue of an

assessment. The matter was settled and the settlement made an order of court. The

Commissioner then sued again for additional monies he contended were owed for the same

income year in respect of which an order of court had been made. The majority (the court

was unanimous as to the outcome) held:

To determine whether or not the appellant's argument should succeed, it is necessary

to identify the cause of action upon which the respondent relied in the first

proceeding. There can be no doubt that the respondent sued for a debt due to the

Crown by the appellant in respect of income tax assessments and additional tax for

late payment for the years in question. Equally, there is no doubt that in the second

proceeding the respondent sued for a debt due to the Crown in respect of the same

assessments and the same additional tax for late payment. Whether one focuses on the

facts supporting a right to judgment or on the right impugned or on the substance of

the action, the conclusion is inevitable that the cause of action relied upon by the

respondent in the second proceeding is that upon which he had earlier relied. The

additional credit reflecting the amount paid by the appellant after judgment was

entered in the earlier proceeding was not part of the cause of action; it was simply an

amount paid in respect of that cause of action.307

304 Blair v Curran [1939] HCA 23; (1939) 62 CLR 464. 305 Orica Ltd & Anor v FC of T 2001 ATC 4039; Spassked Pty Ltd v FC of T 2007 ATC 5406. 306 Chamberlain v Deputy Federal Commissioner of Taxation [1988] HCA 21; (1988) 164 CLR 502. 307 Ibid [14].

113 Taxpayer Rights

The court then continued:

It may well be true that, as the respondent submitted, estoppel by representation

affords no answer to a claim in exercise of a statutory power or duty or a right

conferred in the public interest: see Maritime Electric Co. v. General Dairies, Ltd.

(1937) AC 610, at pp 619-621. And it may well be that no conduct on the part of the

Commissioner can operate as an estoppel against the operation of the Act: Federal

Commissioner of Taxation v. Wade [1951] HCA 66; (1951) 84 CLR 105, at p 117. It

is equally true that the Commissioner is not bound by a determination made in respect

of an assessment for one year, so far as other years are concerned: Caffoor v. Income

Tax Commissioner (1961) AC 584, at pp 598-601. Likewise, there can be no issue

estoppel against the operation of a statute which creates public rights and duties or

which enacts imperative provisions: Bradshaw v. M'Mullan (1920) 2 Ir R 412, at pp

425-426; Griffiths v. Davies (1943) KB 618; Kok Hoong v. Leong Cheong Kweng

Mines Ltd. (1964) AC 993, at pp 1015-1017.

All this may be accepted for the purposes of the present appeal but it has little to do

with the question at issue. This is not a situation in which all that is involved is the

conduct of the respondent or indeed the operation of an Act which imposes liability

for income tax and provides the means by which that tax may be assessed and

recovered. The point of the present appeal is that the respondent brought an action

against the appellant and recovered judgment against him. He obtained a judgment of

the court in which the cause of action upon which he relied merged, thereby

destroying its independent existence so long as that judgment stood. And, so long as

that judgment stands, it is not competent for the respondent to bring further

proceedings in respect of the same cause of action. It is no answer to say that the

court might, if appropriate, stay the second action as an abuse of process. The

impediment goes deeper than that; res judicata may sustain a plea of abuse of process

but in that case the appropriate remedy is to strike out the later action: Greenhalgh v.

Mallard (1947) 2 All ER 255, at p 257; Dallal v. Bank Mellat (1986) QB 441, at pp

451-454. So long as the respondent chooses, as he does, to take no step to set aside

the judgment and to raise no issue in the second action as to the circumstances in

which that judgment was obtained, he must accept the consequences of res judicata.

There is nothing in the Act or arising from the position of the respondent as a public

officer that precludes the operation of that doctrine. The matter is not one for the





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discretion of the Court; by operation of law the cause of action relied upon by the

respondent has ceased to exist (Emphasis added).308

If a judgment is granted for tax owed in respect of one income year it seems the

Commissioner cannot then seek to claim additional sums contended to be owed in respect of

tax in the same income year unless the first judgment is set aside.

The issues of the various bases for estoppel seem to be of little value to taxpayers although

depending on the facts estoppel may be used as a shield against a claim by the Commissioner.

308 Ibid [20-21].

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14. Unjust Enrichment

A claim:

for an amount paid under fundamental mistake of fact should now be recognized as

lying not in implied contract but in restitution or unjust enrichment…In other words,

receipt of a payment which has been made under a fundamental mistake is one of the

categories of case in which the facts give rise to a prima facie obligation to make

restitution, in the sense of compensation for the benefit of unjust enrichment.309

The High Court has also recognised a mistake of law giving rise to such a claim.310

The Federal Court has held (obiter) that no claim for unjust enrichment arises for taxes

overpaid because they were inconsistent with the statutory scheme.311 The reasons for this

conclusion were:

• the taxpayer’s entitlement to a restitutionary remedy does not arise on payment of the

tax incorrectly demanded (as it would under the general law), but only when the

assessment is set aside.

• section 172 of the Assessment Act imposes a duty on the Commissioner to refund tax

overpaid in certain circumstances — that is, where by reason of an amendment of an

assessment, the taxpayer's liability to tax is reduced. This language suggests an

intention to provide an exclusive remedy for the recovery of overpaid tax, within the

framework of the objection and appeals process.

• if the taxpayer can recover tax incorrectly assessed under principles of unjust

enrichment before the assessment is amended, s 172(1) is rendered nugatory. If, on

the other hand, the taxpayer can only claim a remedy founded on unjust enrichment

once the assessment is amended, the general law remedy has been curtailed by the

statutory scheme to the point where it is unrecognisable.

• if a taxpayer can rely on restitutionary remedies, the statutory limitations on the

recovery of interest might be circumvented by more generous provision for interest

under the general law.

309 Australia & New Zealand Banking Group Ltd v Westpac Banking Corporation [1988] HCA 17; (1988) 164 CLR 662 [11]. 310 David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48. 311 Lamesa Holdings BV v FCT 99 ATC 4545 [106].

116 Taxpayer Rights

This issue once again came up for consideration in a case concerning sales tax where the

court said:

In any event, I consider that the Interest Act constitutes a code for the recovery of

interest on overpaid sales tax. It would be curious if the legislature, in circumstances

such as those presently under consideration, intended to restrict the right to recover

interest under the Interest Act, as it has in Part III of the Interest Act, yet intended to

allow an unrestricted right, derived from the general law, to remain available at the

same time.312

The Federal Court had occasion to consider this issue once again in State Bank.313 Sales tax

was overpaid and the Commissioner agreed to refund the overpayment but declined to pay

interest on the overpayment. The Taxation (Interest on Overpayments and Early Payments)

Act 1983 did not apply to this overpayment. The court said:

This notion is reflected in a passage in the judgment of Deane J in Pavey & Mathews

Pty Ltd v Paul (1987) 162 CLR 221 at 256-257 in which he said the concept of unjust

enrichment ''constitutes a unifying legal concept which explains why the law

recognises, in a variety of distinct categories of case, an obligation on the part of a

defendant to make fair and just restitution for a benefit derived at the expense of a

plaintiff and which assists in the determination, by the ordinary processes of legal

reasoning, of the question whether the law should, in justice, recognise such an

obligation in a new or developing category of case''. At a later stage of his reasons,

Deane J related this conceptual approach to the determination of the quantum of

compensation. He said at 263:

''What the concept of monetary restitution involves is the payment of an

amount which constitutes, in all the relevant circumstances, fair and just

compensation for the benefit or `enrichment' actually or constructively

accepted.''

The court awarded interest in favour of the taxpayer.

312 Qantas Airways Ltd v FCT 2001 ATC 4760 [78]. 313 State bank of New South Wales v FCT 95 ATC 4734.

117 Taxpayer Rights

Unjust enrichment arose in another case involving stamp duty where the Commissioner

acknowledged tax has been overpaid but declined to refund the overpayment. The

Commissioner contended that she (the Commissioner) had discretion to decline to refund

because the relevant statute provided that:

Where the [Commissioner] finds in any case that duty has been overpaid, whether

before or after the commencement of the Stamps Act 1978 he may refund to the

company, person or firm of persons which or who paid the duty the amount of duty

found to be overpaid.'314

The majority (Brennan J with whom Toohey and McHugh JJ concurred) held (the remaining

judges delivered separate concurring judgments):

The fact that Royal had passed on to its policy holders the burden of the payments

made to the Commissioner does not mean that Royal did not pay its own money to the

Commissioner. The passing on of the burden of the payments made does not affect

the situation that, as between the Commissioner and Royal, the former was enriched

at the expense of the latter. It may be that, if Royal recovers the overpayments it

made, the policy holders will be entitled themselves to claim a refund from Royal of

so much of the overpayments made by Royal to the Commissioner as represents the

amount paid to Royal by the policy holder. However that may be, no defence of

“passing on” is available to defeat a claim for moneys paid by A acting on his own

behalf to B where B has been unjustly enriched by the payment and the moneys paid

had been A's moneys.315

The Royal Insurance case had unusual facts to justify a finding of unjust enrichment.

It seems today, in the vast majority of cases a claim for unjust enrichment would fail.

However, depending on the facts there is a slight possibility that a taxpayer may be

successful.

314 Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd (1994) 182 CLR 51 [12]. 315 Ibid [19].

118 Taxpayer Rights

15. Human Rights

The Human Rights (Parliamentary Scrutiny) Act 2011 creates a committee of Parliament to

examine all legislation to see if it is compatible with human rights and to report their findings

to the Parliament. Human Rights are defined broadly in this legislation but do not appear to

impact on any tax legislation that has passed through Parliament. The European Court has set

aside some tax legislation due to breaches of enshrined rights such as those to property but

this is of little precedential value in Australia.316

Australian domestic law provides that where there is a ratified treaty it only has effect when

incorporated into domestic law.317 Thus for any treaty to be enforceable in Australia

legislation would have to be passed that provides that the treaty terms are part of the laws of

Australia. This has been done in limited circumstances. For example, the International

Covenant on Civil and Political Rights is enforceable in Australia but the Universal

Declaration of Human Rights does not appear to have been incorporated into legislation.

The tax laws do not impact on any treaties that have been incorporated into Australian law.

This statement does not take account of double tax treaties, Division 815 Income Tax

Assessment Act 1997 (dealing with transfer pricing issues) nor any agreements or legislation

that may be passed in relation to the various reports on base erosion profit shifting (usually

referred to as BEPS) by the OECD.

The Australian Human Rights Commission Act 1986 (HRC) has a schedule incorporating the

International Covenant on Civil and Political Rights into Australian law. If a taxpayer

contends he or she has been discriminated against in terms which bring that taxpayer within

the ambit of the HRC then the Human Rights Commission may investigate the complaint.

The Human Rights Commissioner cannot make binding determinations.

316 See for example Tax Law Design and Drafting, (Ed) Victor Thuronyi, international Monetary Fund 1996< https://books.google.com.au/books?id=ab4Q9tktrX0C&pg=PA33&lpg=PA33&dq=human+rights+and+tax+law&source=bl&ots=eq4seuQJtc&sig=FAkt9mHS1QsRR9KLciWyzwFvp5c&hl=en&sa=X&ved=0ahUKEwiyj9jF4e7KAhUFUZQKHV8kBbw4ChDoAQhBMAI#v=onepage&q=human%20rights%20and%20tax%20law&f=false>. 317 Kathrin Bain and Richard Krever, Australia, in Tax Rules in Non Tax Agreements, (ed.) Michael Lang, Pasquale Pistone, Josef Schuch, Claus Staringer and Alfred Storck (IBFD 2012).

119 Taxpayer Rights

Re Burrowes318 is a case where human rights were an issue. In response to an application for

sequestration by the Commissioner due to the non-payment of taxes properly assessed, the

taxpayer argued:

• he had paid in the form of shovels; and

• in any event he was not bound by the tax laws of Australia as it involved a violation

of his right to conscientiously object against paying tax which was used by the

Australian Government to finance military activities and the nuclear arms race. He

relied on Article 18 of the Universal Declaration of Human Rights and the

International Covenant on Civil and Political Rights;

• it was a violation of his legal duty under international law. Obedience to superior

orders was no defence to a breach of that law as established at the Nuremburg War

Trials;

• the tax was used for nuclear weapons which were illegal pursuant to international

treaties to which Australia was a signatory; and

• the non-payment of tax would help prevent the imminent peril of a nuclear holocaust.

This was justified by the law of necessity

The court held that:

1. Income tax regulation 58 requires taxpayers to pay income tax by cash, banknotes or

cheques. In other words, in the ordinary form of legal tender for debts. Accordingly, the

tax debt had not been paid.

2. The Australian system of democratic government assumes that an elected Parliament

passes laws which have force in Australia. The rule of law requires that those laws be

enforced and does not give individuals the choice of disobeying them because they

happen to offend an individual's conscience, however sincere and rational those beliefs

may be. Although the International Covenant on Civil and Political Rights appears as a

Schedule to the Human Rights and Equal Opportunity Commission Act, it is not part of

the domestic law of Australia in the sense of creating legal rights and obligations in

Australian courts. It does not provide a legal basis which allows Australian taxpayers at

their individual option to withhold any part of the tax which is otherwise payable.

318 Re Burrowes; Ex parte DFCT 91 ATC 5021.

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3. The events of the Nuremburg War Trials are not applicable to the taxpayer's obligations

under the Assessment Act. There can be no suggestion that the payment of tax assessed

under Australian law involves the breach of international law.

4. Australia's obligations under international treaties are a matter of international relations

between nations and do not form part of the Australian domestic law.

5. The defence of necessity relates to a charge of a criminal offence only and does not

extend to enable taxpayers to opt out of their obligations because they disagree with the

use to which the Government may use tax moneys.

In Ellenbogen319 there was a claim that the tax laws were racially discriminatory but the

claim was dismissed. The head note to the judgment reads:

The court found there was no evidence in this case of a breach of the Racial

Discrimination Act. The Commissioner's decision was not made on the basis of the

national or ethnic origin of the taxpayer. Neither sec. 51 nor any other provision of the

Income Tax Assessment Act deprives a person of any particular race, colour or

national or ethnic origin of a right, or limits their enjoyment of a right, enjoyed by

persons of any other race, colour or national or ethnic origin.

In addition to the legislation cited above there are further enactments that have reference to

human rights. These are:

• Age Discrimination Act 2004;

• Disability Discrimination Act 1992;

• Sex Discrimination Act 1984; and

• Electronic Transactions Act 1999.

Having regard to the self-assessment system adopted in Australia and the manner in which

the tax laws are administered it is unlikely that there could be a breach of any one of these

statutes against a taxpayer in their capacity as taxpayer.

It would seem human rights do not afford taxpayers any rights in their capacity as taxpayers.

319 Ellenbogen v Federal Commissioner of Taxation 88 ATC 2012.

121 Taxpayer Rights

16. Model Litigant Rules

Pursuant to section 55ZF of the JA the Attorney-General may issue directions that are to

apply generally to Commonwealth legal work; or that are to apply to Commonwealth legal

work being performed, or to be performed, in relation to a particular matter. Under section

55ZF a direction has been issued that inter alia requires the ATO to act as a model litigant in

proceedings before the courts and other tribunals. The model litigant rules require that the

Commonwealth and its agencies act honestly and fairly in handling claims and litigation

brought by or against the Commonwealth or an agency.

However, section 55 ZG (2-3) provides that:

2. Compliance with a Legal Services Direction is not enforceable except by,

or upon the application of, the Attorney-General.

3. The issue of non-compliance with a Legal Services Direction may not be

raised in any proceeding (whether in a court, tribunal or other body) except

by, or on behalf of, the Commonwealth.

This would seem to suggest a taxpayer litigant cannot avail itself of the direction issued under

section 55ZF.

This was affirmed in Croker320 where the court held that:

It was not necessary for his Honour to explore this issue further because compliance

with the directions was not enforceable by Mr Croker and could not be raised in any

proceeding other than by or on behalf of the Commonwealth.

However in Caporale321 the court noted:

It is important to note the limited field of operation of ss 55ZG(2) and (3). I accept the

submission on behalf of the respondent as follows:

To the extent that the common law has recognised any principles that govern or

regulate the conduct of bodies politic or other public bodies involved in litigation (as

to which see Melbourne Steamship Co. Ltd v Moorehead [1912] HCA 69; (1912) 15

320 Croker v Commonwealth of Australia [2011] FCAFC 25 [19]. 321 Caporale v Deputy Commissioner of Taxation [2013] FCA 427 [51].


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CLR 333 at 342; Scott v Handley [1999] FCA 404; (1999) 58 ALD 373 at [43]- [44]),

ss 55ZG(2) and (3) say nothing about who may seek to agitate, rely upon or enforce

obligations said to arise under such principles forming part of the common law.

The sole effect of ss 55ZG(2) and (3) is in relation to obligations that arise under Legal

Services Directions made under s 55ZF of the Judiciary Act.

Caporale322 suggests the common law protects litigants where the State is a party. The state

must treat its subjects fairly and not seek to take unfair advantage of a litigant either because

of some error on the part of that litigant or the state. The effect of the foregoing is effectively

a common-law reiteration of the model litigant rules. This is exemplified in the following

extract from Scott:323

The second respondent is, as we have noted, an officer of the Commonwealth. As

such he properly is to be expected to adhere to those standards of fair dealing in the

conduct of litigation that courts in this country have come to expect - and where there

has been a lapse therefrom, to exact - from the Commonwealth and from its officers

and agencies. The spirit of this “model litigant” responsibility, now long enshrined in

a policy document of the Commonwealth, is perhaps best captured in the observations

of Griffith CJ in Melbourne Steamship Co Ltd v Moorehead [1912] HCA 69; (1912)

15 CLR 333 at 342:

“I am sometimes inclined to think that in some parts - not all - of the

Commonwealth, the old-fashioned traditional, and almost instinctive,

standard of fair play to be observed by the Crown in dealing with subjects,

which I learned a very long time ago to regard as elementary, is either not

known or thought out of date. I should be glad to think that I am mistaken.”

Insistence upon that standard is a recurrent theme in judicial decisions in this country

in relation to the conduct of litigation by all three tiers of government (References

omitted)…

As with most broad generalisations, the burden of this fair dealing standard is best

appreciated in its particular exemplifications in individual cases. The courts have, for

322 Ibid. 323 Scott v Handley [1999] FCA 404 [43-46].

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example, spoken positively of a public body's obligation of “conscientious

compliance with the procedures designed to minimise cost and delay”: Kenny's case,

above, at 273; and of assisting “the court to arrive at the proper and just result”: P &

C Cantarella Pty Ltd v Egg Marketing Board, above, at 383. And they have spoken

negatively, of not taking purely technical points of practice and procedure: Yong’s

case, above, at 166; of not unfairly impairing the other party's capacity to defend

itself: Saxon’s case, above, at 268; and of not taking advantage of its own default: SCI

Operations Pty Ltd, above, at 368.

In the present instance the second respondent… has fallen considerably short of the

standard properly to be expected of the Commonwealth.

LVR was a tax case where the AAT effectively copied the Commissioner’s written

submissions in handing down its decision on a challenge. The matter went on appeal on

grounds unrelated to this. This problem was ascertained by virtue of the court of appeal

reading the transcript of the proceedings with a view to preparing for the hearing of the

appeal. The full bench of the Federal Court had this to say about the ATO acting as a model

litigant:

Being a model litigant requires the Commonwealth and its agencies, as parties to

litigation, to act with complete propriety, fairly and in accordance with the highest

professional standards. This obligation may require more than merely acting honestly

and in accordance with the law and court rules. It also goes beyond the requirement

for lawyers to act in accordance with their ethical obligations: see notes 2 and 3 to

clause 2 of Appendix B to the Legal Services Directions 2005 made under section

55ZF of the Judiciary Act 1903 (Cth)). That statutory instrument reflects an

expectation the courts in our system of justice have of the executive government and

its emanations…Its powers are exercised for the public good. It has no legitimate

private interest in the performance of its functions. And often it is larger and has

access to greater resources than private litigants. Hence it must act as a moral

exemplar…In our opinion, counsel representing the executive government must pay

scrupulous attention to what the discharge of that obligation requires, especially

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where legal representatives who are independent of the agency are not involved in the

litigation (Emphasis added).324

The appeal was upheld inter alia on the grounds raised by the court itself and referred back to

the tribunal to reconsider its decision.

A case where a taxpayer was successful in raising the obligation to act as a model litigant is

Comaz.325 In this case a crucial witness was not called by an unrepresented applicant.

Neither the tribunal nor the Commissioner made the taxpayer aware of the rule in Jones v

Dunkel 326 that an adverse inference could be drawn in such circumstances. The court on

appeal from the AAT said:

One of the fundamental rules of the fair hearing doctrine is that a decision-maker

should not make an adverse finding relevant to a person’s rights, interests or

legitimate expectations unless the decision-maker has warned that person of the risk

of that finding being made or unless the risk necessarily inheres in the issues to be

decided. It is a corollary of the warning rule that a person who might be affected by

the finding should also be given the opportunity to adduce evidence or make

submissions rebutting the potential adverse finding.327

The court continued:

The failure of the Tribunal to even attempt to clarify or explain the manner in which

an inference may be drawn, and indeed was drawn, in regard to the failure to call Mr

Alderuccio resulted in a breach of procedural fairness of a most serious kind. As I

have indicated, any notion that such a defect could have been cured by counsel for the

Commissioner merely raising the issue in closing submissions without any further

steps being taken, such as advising Ms Hirst of the possibility of re-opening Comaz’s

case to recall Mr Alderuccio, sorely misses the point. In many ways, the fact that the

point was raised in closing submissions, and accepted by the Tribunal in its reasons,

only serves to highlight how important the issue was to the conduct of the trial in a

324 LVR (WA) Pty Ltd v Administrative Appeals Tribunal [2012] FCAFC 90 [42]. 325 Comaz (Aust) Pty Ltd v Commissioner of State Revenue [2015] VSC 294. 326 Jones v Dunkel [1959] HCA 8. 327 Comaz (Aust) Pty Ltd v Commissioner of State Revenue [2015] VSC 294 [2].

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manner which provided procedural fairness…The course followed also raises some

concern in relation to the conduct of the Commissioner as a model litigant.328

Denlay329 has been referred to earlier. The taxpayer sought to set aside a garnishee order

issued notwithstanding a stay of proceedings in an earlier decision. The court implicitly

regarded this as a breach of the obligation to act as a model litigant stating:

Even so, I am not prepared, in respect of a statement of reasons which makes no

reference to a Supreme Court judgment which expressly took into account the

prospect that not to grant a stay might render nugatory the then extant taxation

appeals, to infer that the decision-maker took this same prospect into account. Instead,

what I infer from the absence of reference is that the Commissioner did not take the

potential impact on the taxation appeals into account.

I reach that conclusion without regard to the fact that the Denlays did later become

bankrupt and that this did result in the dismissal of the taxation appeals without

completion of the hearing. What the Commissioner did or did not take into account

must be judged by the circumstances prevailing at the time when the decisions under

review were made and by reference to the reasons which the decision-maker gave, not

by the wisdom of hindsight.

That conclusion does not carry with it the further conclusion that the Commissioner

deliberately set out to hamstring the Denlays’ ability to complete the prosecution of

their taxation appeals. Such a finding ought not to lightly be made, even in a civil

proceeding. Such a decision would not just be invalid but might also evidence a grave

contempt of court. In this instance, the decisions are grounded in ignorance, not

malice. That the Commissioner chose, voluntarily, to disclose his reasons for making

the decisions reinforces why the further conclusion is not open.330

The last paragraph of the above extract is cited as a further example of the reluctance of the

courts to find the Commissioner has acted illegally.

Unfortunately for taxpayers the breach of the obligation to act as a model litigant would

generally occur during the course of proceedings and possibly even only become apparent as 328 Ibid [54]. 329 Above n 252. 330 Denlay v Commissioner of Taxation [2013] FCA 307 [76-78].

126 Taxpayer Rights

was the case in Comaz in closing argument or even later: See LVR. An appeal if there was

some breach of natural justice could be successful depending on the prejudice suffered by the

taxpayer.

It seems these rules are of assistance to taxpayers but the breach would have to impact

significantly on taxpayer litigant rights. It is probably of most value when the taxpayer is

unrepresented in the AAT or Federal Court. A legal representative would presumably be

aware of these obligations and ensure the Commissioner complied with them. If the AAT

made an interlocutory order which would impact the outcome of the hearing in breach of this

obligation it is possible applications under the AD(JR)A or JA or Constitution may be

possible in limited circumstances.331

331 D Pearce, Administrative Appeals Tribunal, 2015 (4th Ed) LexisNexis Australia, 413-415.

127 Taxpayer Rights

17. Conclusion

This report on taxpayer rights under the tax laws has evidenced that there are a few rights

available to taxpayers against the Commissioner both under statute and the common-law.

These include rights vested in taxpayers under such tax laws as the TAA, AD(JR)A, JA or

Constitution. The onus on taxpayers to succeed in many of these cases may often prove

difficult to discharge.

Important common law rights such the right to claim LPP have, to some extent, been negated

by cases such as Donoghue. It seems LPP can only be claimed as a right where there is a

provision in a statute that compels production of documents such as section 353-15 TAA.

However, if these confidential documents have come into the possession of a third party (the

means by which the third party came into possession of these documents appear to be

irrelevant) and that party hands these documents to the Commissioner he is entitled and in

terms of Donoghue, obliged to have regard to these documents in determining the amount by

which the taxpayer is to be assessed.

Possibly the best avenue for challenging the Commissioner, other than in court proceedings,

would be to note a complaint with the IGT. However, the IGT cannot investigate or look into

matters dealing with an assessment. An example given under section 7 (the powers of the

IGT) of the Inspector-General of Taxation Act 2003 is where a taxpayer seeks compensation

under an administrative scheme because of action by a tax official during the course of an

audit that caused the taxpayer detriment. The Inspector-General can investigate the action

that caused the detriment, and any action by a tax official under the scheme.

128 Taxpayer Rights

Appendix A: Offences and Penalties under TAA

Section No.

Obligation/Offence Strict or Absolute Liability

Penalty for Individual Penalty for Corporation

8C A person refuses or fails to

furnish an approved form or any information to the Commissioner.

Absolute. First offence: 20 penalty units.332 Second offence: 40 penalty units. Subsequent offences: 50 penalty units or imprisonment for a period not exceeding 12 months, or both.

First offence: 20 penalty units. Second offence: 40 penalty units. Subsequent offences: 250 penalty units.

8D A person when attending before the Commissioner refuses or fails to answer a question, or to produce a book, paper, record or other document.

Strict. As for section 8C. As for section 8C.

8G N/A N/A. If convicted of an offence against section 8C or 8D, the court may, in addition to imposing a penalty, order the person to comply with the requirement within a specified time or at a specified place and time.

As for individual.

8H Failure to comply with a court order made under section 8G.

Strict. 50 penalty units or imprisonment not exceeding 12 months or both.

250 penalty units.

8HA If convicted of an offence under section 8C, 8D or 8H and the court is satisfied that the purpose of the offending was to facilitate the avoidance of a tax liability of the convicted person or another person.333

N/A. In addition to any sentence, a court may order the convicted person to pay twice the amount of tax avoided, or if convicted on two or more occasions, three times that amount.

As for an individual.

8K A person makes a false or misleading statement.

Absolute. First offence: 20 penalty units. Second and further offences: 40 penalty units.


8L Any accounts, accounting Absolute. As for section 8K. As for

332 A penalty unit is $170: Crimes Act s 4AA. 333 Avoidance in this context means more than a breach of the GAAR: Australasian Jam Co Pty Ltd v Federal Commissioner of Taxation (1953) 88 CLR 23; Federal Commissioner of Taxation v Westgarth (1950) 81 CLR 396.

129 Taxpayer Rights

records or other records do not correctly record and explain the matters, transactions, acts or operations to which they relate.

section 8K.

8N Recklessly making false or misleading statements to a taxation officer.

N/A. First offence: 30 penalty units. Subsequent offences: 50 penalty units or imprisonment for a period not exceeding 12 months, or both.

First offence: 30 penalty units. Subsequent offences: 250 penalty units.

8Q Recklessly presenting accounts and records that do not correctly record and explain the matters, transactions, acts or operations to which they relate.

Strict. As for section 8N. As for section 8N.

8T Records that do not correctly record and explain the matters, transactions, acts or operations to which they relate; or that are (whether in whole or in part) illegible, indecipherable, incapable of identification or are used with the intention to deceive, mislead or obstruct the Commissioner.

N/A. First offence: 50 penalty units or imprisonment for a period not exceeding 12 months, or both. Subsequent offences: 100 penalty units or imprisonment for a period not exceeding two years, or both.

First offence: 250 penalty units. Subsequent offences: 500 penalty units.

8U Conduct that results in or facilitates the falsification or concealment of the identity of, or the address or location of a place of residence or business of the person or another person, with any of the intentions specified in section 8T.

N/A. As for section 8T. As for section 8T.

8W (1) If convicted of an offence under sections 8K, 8L, 8N or 8Q and the court is satisfied that the proper amount of a tax liability of the convicted person or another person exceeds the amount that would have

N/A. In addition to any sentence, a court may order the convicted person to pay to the Commissioner an amount not exceeding three times the amount of the excess where the


130 Taxpayer Rights

been the amount of the tax liability if it were assessed or determined on the basis that the statements were not false or misleading, or the relevant accounts or records were correct.

person has been convicted two or more times for a breach of sections 8N or 8Q TAA, and in any other case, twice the amount.

8W(2) Where a person is convicted of an offence against section 8T or 8U and the court is satisfied that the purpose of, or one of the purposes of, the conduct was to facilitate the avoidance of an amount of a tax liability of the convicted person or another person.

N/A. In addition to any sentence, a court may order the convicted person to pay to the Commissioner an amount not exceeding three times the amount of the excess if previously convicted of such an offence, or in any other case, double that amount.


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